■ Malaysia’s Nov palm oil stocks seen climbing 0.1% mom to 2.84m tonnes
■ Palm oil output expected to fall 13.8% mom matching the decline in Nov’s exports
■ High stockpiles are likely to cap near-term CPO prices
■ Planters cut their palm oil output forecasts by 3-10% in 2016 due to the drought, and project higher CPO price to offset the lower output. Maintain Neutral rating.
Slight uptick in stocks for Nov 15?
Findings from a survey of 24 Malaysian planters by the CIMB Futures team revealed that Malaysian CPO output fell 13.8% mom to 1.76m tonnes in Nov 15. Palm oil exports fell by 10% mom, based on export statistics released by cargo surveyors. Overall, we estimate that Malaysian palm oil inventories could have climbed 0.1% mom to a new high of 2.84m tonnes at end-Nov 15. The official figure will be released on 10 Dec.
Production slipping as palm trees enter the low output season
We are not surprised by the survey outcome showing a 13.8% mom drop in Nov production, as this is in line with the historical seasonal palm oil output trend in Malaysia. Our survey revealed that Sarawak estates posted the biggest drop in output of around 17.8% mom, followed by Peninsular Malaysia which registered a 17.3% mom decline in output. Sabah estates reported saw a 6% mom drop in production.
Weak demand from India and US led to exports slippage
We estimate Malaysian palm oil exports fell by c.10% mom, based on estimates from cargo surveyors Intertek (-10.1% mom) and SGS (-10.2% mom), due to weaker demand from India and USA. This could be due to increasing competition from soybean oil from South America following the narrowing of the price spread between CPO and soy oil.
Planters cautious on 2016 production prospects
Palm oil producers are generally cautious on production prospects for 2016 due to concerns over the lagged effects on FFB yields from the lower rainfall received in East Malaysia in 2Q15 and Indonesia in 3Q15 due to the El Nino. Planters have indicated that production may fall 3% to 10% from their target due to the dry weather experienced so far. At IPOC, speakers projected that global palm oil output growth for 2016 could range from -7% to +4%, depending on the severity of the El Nino.
Higher CPO prices will help to curb demand
We are projecting higher CPO prices in 2016 will help curb palm oil demand in view of slower palm oil output growth. Our CPO price projection for 2016 of RM2,450 per tonne is 12% higher than 2015’s price that is likely to average RM2,180 per tonne. However, spot CPO prices have not reacted to this potential in view of the current high palm and soybean stockpiles. We expect rerating of CPO price to happen in the later part of 1Q16.
Stubbornly high stockpiles will cap near-term CPO prices
The high stockpiles will continue to put a lid on CPO prices in the near-term. As such, we project near-term CPO price to trade in the range of RM2,100-2,500 per tonne. We think CPO prices will only start to move higher when there are signs of depleting palm inventories at the palm producing countries in 1Q16. Maintain Neutral rating on the sector as the higher prices will be partially offset by lower output and rising costs. (Read Report)
Source : CIMB Research