This article first appeared in The Edge Financial Daily, on October 5, 2015.
Plantations sector
Maintain neutral call: A survey of 20 Malaysian planters by the CIMB Futures team revealed that Malaysian crude palm oil (CPO) output fell 2.5% month-on-month (m-o-m) to two million tonnes in September this year.
We estimate that palm oil exports rose by around 0.6% m-o-m, based on export statistics released by cargo surveyors.
Based on these assumptions, we estimate that Malaysian palm oil inventories could have climbed 9% m-o-m and 30% year-on-year (y-o-y) to an all-time high of 2.71 million tonnes at end-September.
Our checks with planters revealed that several key producing palm oil regions in Indonesia, mainly Kalimantan and South Sumatra, have very low rainfall for more than two months due to El Nino.
This resulted in lower output at the affected estates in August and September, and some planters estimate a potential yield decline of 5% to 15% in 2016. The two regions produced about 38% of Indonesia’s CPO in 2013.
We understand from planters that the haze that has engulfed Southeast Asia for the past month has not significantly impacted estates’ productivity so far.
However, the prolonged haze could affect photosynthesis of the palm trees and impact productivity six to 12 months later.
The most active CPO futures prices have increased 17% over the past two weeks to RM2,472 per tonne, due to concerns that El Nino will reduce palm oil supplies, weaker ringgit, and bullish CPO price predictions of RM2,300 to RM2,800 per tonne, the Globoil India conference showed.
This is broadly in line with our average CPO price forecast of RM2,230 per tonne. In the event of the strong El Nino, we estimate prices could touch RM2,700 per tonne.
Indonesian palm oil players, with highly planted oil palm estate exposure in Kalimantan and South Sumatra, may be most affected by the ongoing drought in Indonesia.
Malaysian planters may be the least impacted. Among the stocks under our coverage, Eagle High Plantations has the highest estate exposure to Kalimantan. — CIMB Research, Oct 2
