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This article first appeared in The Edge Financial Daily, on August 12, 2016.

 

Plantation sector
Maintain neutral:
The Malaysian Palm Oil Board’s palm oil stockpile declined marginally by 0.2% month-on-month (m-o-m) to 1.77 million tonnes in July 2016, as higher output was offset by higher exports.

Production inched up for the fifth consecutive month by 3.5% m-o-m to 1.59 million tonnes, with the bulk of the increase coming from Sabah and Sarawak.

While production remained lower on a year-on-year (y-o-y) basis by 12.7%, we note the y-o-y decline in July 2016 had eased further. This could be explained by the onset of El Nino since last year, which has in turn resulted in weaker palm production in 2016 as well as the shift in the cropping pattern. 

Exports jumped 21.2% m-o-m to 1.38 million tonnes driven mainly by restocking activities ahead of the Mid-Autumn Festival, which resulted in exports to China more than doubling to 211,000 tonnes from 101,000 tonnes in the previous month. 

Exports to other key destinations also increased, particularly to India, the European Union and the US. We suspect this was due to the low crude palm oil (CPO) prices during July 2016, which in turn boosted CPO sales.

Cargo surveyor Intertek Testing Services reported that palm oil shipment for the first 10 days of August rose 17.8% to 456,000 tonnes. 

While La Nina may still develop, both weather forecasters — the Australian Bureau of Meteorology and National Oceanic and Atmospheric Administration — suggest that the intensity will likely be weak, if it happens. 

We maintain our “neutral” stance on the sector, with a projected average CPO price of RM2,400 per tonne and RM2,500 per tonne for 2016 and 2017 respectively. — Hong Leong Investment Bank Research, Aug 11

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