CPO futures up most in over 3 months

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KUALA LUMPUR: Palm oil futures climbed the most in more than three months to close at the highest since September on concern growth in global vegetable oil supplies may lag behind consumption.

“Supply is really tight,” Wilianto Ie, a Jakarta-based analyst at CLSA Asia Pacific Markets told Bloomberg yesterday. “Demand is still firm.”

Stockpiles of palm oil in Malaysia, the second-largest producer, slumped 13% to 1.36 million tonnes in March, the lowest level since July 2007, the nation’s palm oil board said last Friday. Exports gained last month for the first time in three months, it said.

The country’s palm oil exports may increase 4.9% to 620,000 tonnes in the first 15 days of April compared with the same period in March, according to a preliminary estimate from independent surveyor Intertek yesterday.

Palm oil for June delivery on the Malaysia Derivatives Exchange climbed RM150 or 6.4% to RM2,485 a tonne, the highest close since Sept 4.

Malaysian palm oil production, which usually increases in the approach to and during the second half, rose 7.4% to 1.28 million tonnes in March, according to the board.

Meanwhile, Nadia S Hassan reported analysts were expecting CPO prices to trend downwards during the second half of the year (2H) as inventory begins to gradually build up.

While firm demand and depleting stocks managed to buoy prices over the past few weeks, HwangDBS Vickers Research said in a report that CPO production had already started to recover.

“March palm oil production rebounded by 7.4% month-on-month to 1.28 million tonnes following two months of decline,” it said.

HwangDBS expected stocks to edge down to 1.34 million tonnes and to see bottom in May.

“We expect palm oil supply to continue to recover for the rest of the year. This should result in a gradual price decline during the second half of the year, instead of a sharp near-term correction.

“If smallholders accept the replanting incentives offered under the mini-budget, they may even partly offset the production recovery. These expectations, we believe, have attributed to a normalised risk appetite,” it said.

Production in plantations usually reaches its peak in July or August, according to reports.

The research house also noted that while exports to the US and Europe had rebounded by 32.7% and 58.9% respectively, this was offset by lower exports to Pakistan and India.

“Exports to Pakistan and India fell by 21.3% and 37.4% respectively m-o-m, which imply that restocking activities have slowed down in these countries,” said HwangDBS, which has a neutral recommendation on the sector.

It expects CPO prices to hover around RM2,000 in 2010 and RM2,200 in 2011.

It said IOI Corp Bhd is fully valued with a target price of RM2.70, and has a sell on Sime Darby Bhd with a target price of RM4.

IOI closed unchanged at RM4.30 yesterday while Sime Darby was up five sen at RM6.45.

This article appeared in The Edge Financial Daily, April 15, 2009.