CIMB Research says Malaysia palm oil inventory may have bottomed

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KUALA LUMPUR (July 11): CIMB Research says Malaysia's total palm oil inventory may have bottomed at June 2019's 2.42 million tonne level as higher production was offset by stronger exports and in anticipation production will rise in the second half of this year.

In a note today, CIMB analyst Ivy Ng Lee Fang said July inventory is projected to be around 2.4 million tonnes and that CIMB is reviewing its crude palm oil (CPO) price forecast.

"Malaysian palm oil stocks typically bottom in the month of June (30% over the past ten years). (But) current palm oil stock of 2.42 million tonnes remains high relative to the five-year historical average of 2.07 million tonnes. We expect the CPO price to trade in the range of RM1,900-RM2,200 per tonne in July.

"We are reviewing our CPO price forecast of RM2,400 per tonne for 2019F with downside risk but keep our neutral view on the sector. Key upside/downside risks to our call are higher/lower CPO prices," Ng said.

At Bursa Malaysia today, CPO for September 2019 fell RM5 to RM1,932 a tonne at 11:52am.

CIMB's note was in response to the Malaysian Palm Oil Board's (MPOB) June 2019 production and inventory data.

Yesterday, MPOB said total palm oil inventory, comprising CPO and processed palm oil, fell 0.97% in June 2019 to 2.42 million tonnes from a month earlier. MPOB said CPO production dropped 9.17% to 1.52 million tonnes.

Today, CIMB's Ng said: "The stockpile was 2% and 3% above our and consensus forecasts, respectively, due to higher imports. We view this as a negative for CPO price. We are negative on the higher-than-expected palm oil stocks as production is expected to pick up in 2H19.