This article first appeared in The Edge Financial Daily, on November 13, 2015.

Plantation sector
Maintain positive: Malaysia’s October 2015 crude palm oil (CPO) inventories rose to another record high of 2.83 million tonnes. Inventories further increased 7.3% month-on-month (m-o-m) and 30% year-on-year (y-o-y).

As a result, the inventory level came in 4% higher than the consensus estimates of 2.72 million tonnes.

Meanwhile, stock-to-usage ratio also moved up from 11.7% to 12.3%, mainly because of the gain in CPO production growth.

The gain was surprising as we were anticipating CPO production to trend downwards after touching a peak in August.

Palm oil exports rose 1.9% m-o-m and 6.2% y-o-y. Weaker exports to China (-13%), the European Union (2.3%) and other nations (-5.6%) were outpaced by stronger demand from India (+23.7%) and the US (+48.1%).

Year to date, our CPO exports improved only 1.2% compared with the encouraging 17% growth in Indonesia.

We believe our exports are gradually losing some market share, especially in China and Pakistan, due to stiff competition from Indonesia. 

CPO production rose 4% m-o-m and 7.6% y-o-y. Production in Peninsular Malaysia was flat, while Sabah and Sarawak registered a gain of 8.9%.

The strong production growth in Sabah and Sarawak was mainly led by Sarawak, which jumped more than 20%, attributed to the young age profile of plantations and favourable weather condition. 

For the first 10 days in November, Malaysia’s exports fell 5.3% from a month earlier, according to Intertek. We might see another record high inventory level if the exports continue to remain at the current level.

Average CPO price for October was RM2,203 per tonne, 9% higher compared with September, while it was relatively flat compared with October last year.

Over the short term, we expect CPO prices to continue to stay at current levels, as inventories are likely to remain high over the next two months.

Nevertheless, we continue to maintain our positive view on the plantation outlook with an unchanged CPO price forecast of RM2,500 per tonne next year as we think CPO supplies could be significantly affected by El Nino. — PublicInvest Research, Nov 12