Regional Plantations - All-time high stockpile


■ Malaysia’s stockpile, at a record high of 2.63m MT, will cap the near term upside of CPO price.

■ Stockpile may hit 2.7m MT by end Oct/Nov, necessitating CPO price to stay low to encourage exports.

■ The strengthening El Nino provides hope of better CPO price in 2016. NEUTRAL for now. Top BUYs are BAL, GENP, SOP. SELL AALI.

What’s New
The Malaysian Palm Oil Board’s (MPOB) Sept 2015 inventory rose 5% MoM to hit an all-time high of 2.63m MT (+26% YoY). The higher inventory was achieved despite lower MoM production (1.96m MT, - 4% MoM, +3% YoY) and higher exports (1.68m MT, +4% MoM, +3% YoY). Domestic consumption in Sept fell 20% MoM to 0.22m MT (- 18% YoY), likely due to post-Raya celebration effect.

According to independent cargo surveyors, Intertek and SGS, the preliminary export estimates for the first 10 days of Oct fell 11%/10% MoM to 0.46m/0.47m MT. The contraction in export could be due to the sudden surge in CPO price in early Oct 2015 amidst ample palm oil supply.

What’s Our View
We maintain our view that the Malaysian palm oil stockpile may continue to climb and peak around 2.7m MT in Oct/Nov 2015. The high stockpile will likely cap the upside of CPO price in the short term. High CPO price at this stage will be a deterrent to exports as El Nino’s potential impact on yield will likely be felt in 2016.

Still, a situational play is building up in the plantation sector as the El Nino condition has strengthened over the past month and will likely peak in Nov/Dec 2015. The weather forecasters have termed this a strong El Nino. A strong El Nino is typically positive for CPO price. But so far, this El Nino optimism has been watered down by the presence of high palm oil stockpile, high soybean supply and low crude oil price affecting biodiesel demand.

Although we expect CPO price to stay flattish over the next 2 months, we believe it will start trending higher towards year-end and into early 2016. CPO price could potentially peak in Mar - May 2016 with the possibility of touching MYR2,700/t.

We maintain our NEUTRAL call on the sector. Our long-term top BUYs are BAL, GENP and SOP for their growth propositions and the embedded deep values of their landbank (for the two Malaysian planters). SELL AALI for its steep valuation and weak upcoming results. (Read Report)

Read Related Reports
1) Plantation Companies - Range-bound by DBS Group Research, published on 13 October 2015

2) Plantations - Palm oil inventories surge to a new high by CIMB Research, published on 12 October 2015

Source : Maybank Kim Eng Research

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