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This article first appeared in The Edge Financial Daily on February 13, 2018

KUALA LUMPUR: Malaysia’s palm oil stockpile declined 6.75% to 2.56 million tonnes in January against 2.73 million tonnes in December 2017. The lower-than-expected stockpile level is expected to lend support to crude palm oil CPO) prices in the near term, but the long-term outlook remains gloomy.

Strong demand from India boosted exports by 6.01% month-on-month to 1.51 million tonnes, while inventory declined largely in Peninsula Malaysia and Sabah, according to data from the Malaysian Palm Oil Board (MPOB) yesterday.

The dip in inventory, which includes both crude and processed palm oil, marks the first time stockpiles have fallen since June last year. Total palm oil stockpile across Peninsular Malaysia and Sabah fell 11.23% and 3.2% respectively, MPOB data showed.

January’s stockpile decline follows a surge in palm oil stocks to the highest in over two years recorded in December 2017, although it marks the highest figure reported for January since 2013.

Meanwhile, production of crude palm oil declined 13.49% to 1.59 million tonnes in January compared to 1.83 million tonnes in the previous month.

“The lower-than-expected stock level is near-term positive for CPO prices,” said Ivy Ng, head of equity research at CIMB Investment Bank Bhd. In an email response, she said stocks came in at 8% below forecasts as exports outstripped the house’s forecast.

According to TA Securities analyst Angeline Chin, an increase in domestic usage had also cleared some stockpile in January.

“It looks like the figures are positive news for crude palm oil (CPO) prices,” she said, pointing at the increase in the price of CPO futures on Bursa Malaysia yesterday afternoon.

All CPO futures contracts went up yesterday, with CPO futures for April 2018 recording a 26% increase to close at RM2,514.

“We believe that demand will continue to be supported by improved global demand as the winter has ended in the Northern Hemisphere, which should lead to higher usage of palm oil,” MIDF Research analyst Alan Lim told The Edge Financial Daily in an email.

Palm oil consumption tends to decline in cold weather as the edible oil solidifies when temperatures drop.

However, JF Apex Securities analyst Low Zy Jing and RAM Ratings reckon that CPO prices would remain soft this year given the bearish factors, such as a strong ringgit, relatively high inventory and import duties in India.

“We believe the rise in CPO prices was due to a technical rebound in view of the dip in the previous month,” Low wrote in a note yesterday. The research house has a full-year average CPO price forecast of RM2,560 per tonne for 2018, although it expects inventory to continue trending down in view of lower fresh fruit bunch production which outweighs weak export activities.
 

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