Falling inventory props CPO prices

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KUALA LUMPUR: Crude palm oil (CPO) futures rose to their highest level this year on the Malaysian Derivatives Exchange, boosted by falling inventory and firm demand. The CPO contract for June 2009 delivery closed at RM2,335 per tonne, up 1.57% from RM2,299 on April 10.A commodity dealer in TA Futures Sdn Bhd said the latest data by Malaysian Palm Oil Board (MPOB) showed that stockpile dropped 13% from February to 1.36 million tonnes in March, the lowest level since July 2007.   “Exports for the past two months were holding up, with monthly trading volume remaining brisk at 1.26 million tonnes for February and March. Domestic demand of around 200,000 tonnes in March was also quite high,” said the dealer.  Palm oil’s traditional importers India and China continued to show great appetite for the commodity, while demand from European Union countries also remained strong. Demand for the first 10 days this month showed an average increase of 6% against March.Production figures for February and March meanwhile were flat at 1.2 million and 1.27 million tonnes respectively.  “The current price level of above RM2,000 is likely to continue for the coming months, until production reaches its cyclical peak in July and August,” the dealer said. Alvin Tai, a plantation analyst from OSK Securities, was less upbeat about prices holding up for that long. He said although cumulative exports were up 15.7% so far this year, the boost came mainly from the January numbers, which rose by 30.5% year-on-year.“The numbers weakened to 18.1% in February and to just 1.3% last month. This shows that exports of the commodity are losing momentum,” he told The Edge Financial Daily via telephone.He added that the current upward trend in CPO prices was being supported by a sharp drop in supplies from Indonesia. Tai said the main producer of the commodity was suffering from the tail end of the El Nino effect that ravaged plantation yield, with some plantation majors in Indonesia experiencing a drop in production of up to 20% in the fourth quarter of last year.  However, he added that production was likely to grow strongly by 2010, as more than 500,000ha of land planted in recent years come into production, adding about 10% to Indonesia’s mature estates.Indonesia’s production should recover fully going into the second half of 2009, he said. With the absence of adverse weather effect, the additional half a million hectares would help to fuel production growth in the next 10 years.“Despite the strong run-up in CPO prices, we are maintaining a cautious outlook premised on a strong production recovery in the second half of the year. “The decline in palm oil inventory has helped to drive palm oil prices higher but the run-up is due more to weak production than strong exports. Should production recover, inventory will again start to go up if the rise is not matched by an increase in exports,” Tai said.“We are maintaining a neutral call for the sector, as we believe palm oil prices hit rock bottom at RM1,311 in October last year. However, we do not think palm oil prices are ready to launch a new three-year up cycle just yet.”Malaysian palm oil stocks that had less exposure to forward sales stood to benefit from the current surge but they would also be the first to be hit when the rally fizzles out later this year, said Tai.On Bursa Malaysia on April 13, planters Kulim Bhd closed 10 sen higher at RM5.40, IJM Plantation Bhd added eight sen to RM2.36, Asiatic Development Bhd and IOI Corporation Bhd were unchanged at RM4.80 and RM4.30 respectively, while Kuala Lumpur Kepong Bhd slipped 20 sen to RM11.30.