Palm oil stocks may fall to lowest level since Feb 2011

KUALA LUMPUR: Malaysia’s palm oil inventories could have fallen 12% month-on-month (m-o-m) to 1.59 million tonnes in May 2016, its lowest level since February 2011, according to CIMB Research.

“Findings from a survey of 25 Malaysian planters by the CIMB Futures team revealed that Malaysian crude palm oil (CPO) output grew by 1.1% m-o-m to 1.3 million tonnes in May 16. Palm oil exports grew by approximately 13% m-o-m, based on export statistics released by SGS and ITS.

“Overall, we estimate that Malaysian palm oil inventories could have fallen 12% m-o-m to 1.59 million tonnes as at end-May 16, its lowest level since February 2011,” CIMB said.

The official figures will be released on June 10.

CIMB said the 1% m-o-m rise in output was below the historical average m-o-m rise in May’s palm oil output of 7% over the past five years.

It added that on a year-on-year basis, CPO output fell 27% as the El Nino continued to negatively impact fresh fruit bunch yields. Its survey revealed that Sabah estates posted the biggest rise in output of around 10% m-o-m, but this was offset by weaker output from the Peninsular Malaysia (-4.5% m-o-m) and Sarawak (-1.6% m-o-m) estates.

“We estimate that Malaysian palm oil exports increased by circa 13% m-o-m in May 2016, based on estimates from cargo surveyor SGS (15% mom) and ITS (11.2% mom). The strong May exports could also have been partly due to buying ahead of the Eid-al-Fitr festival,” CIMB said.

It expects La Nina to have a positive short-term impact on CPO price as harvesting was affected in flood-prone estates. In the medium term, rainfall may boost palm oil yields, leading to higher output and lower prices.

However, it said that downside risk to CPO price could be capped by a smaller soybean crop as La Nina tends to bring lower rainfall to parts of key soybean-producing areas. Bar the 1998/01 La Nina events, CPO prices tend to react positively to La Nina due to lagged effects of El Nino, that precede most La Nina events.

“CPO prices rose 21% year-on-year to an average RM2,617 per tonne in May 2016, reflecting the weaker palm oil supply.

“We expect CPO prices to trade in the RM2,500-2,900 per tonne range in June, as palm oil supplies are expected to get tighter due to weaker-than-expected supply. We maintain a ‘neutral’ rating on the sector,” CIMB said.