Lower Palm Oil Stocks Puzzling : OSK

Lower stocks of palm oil in July, despite production exceeding exports, is baffling the market, says OSK Research Sdn Bhd.

Production rose seven per cent in July to 1.519 million tonnes and exports was up marginally by 1.8 per cent, but stocks fell 45,400 tonnes to 1,406 tonnes.

“We find this somewhat puzzling and believe this could only be explained by an increase in local consumption,” said OSK, adding that production from both Malaysia and Indonesia looked promising for the rest of the year.

However, it strongly believed the July inventory was indeed the lowest point or most depressed stage of the stock cycle.

Exports in the first 10 days of August was 14 per cent lower, with China leading the weakness.

As for production, OSK said the outlook was very positive for the second-half of the year. “Current fruit formation suggest production will be very strong for the remainder of the seasonal upcycle and potentially peak in October.

“Combined with the lacklustre shipment for July and the first 10 days of August, it is likely that July will turn out to be the inventory trough,” it added.

OSK also said the La Nina factor was also positive for crude palm oil production next year. “While excessive rainfall could hamper fresh fruit bunch output and lower oil extraction rate, we believe rainfall distribution is a more important factor.

“Consistent rain also helps to replenish soil moisture, particularly in areas which had experienced droughts earlier,” said OSK.

It also believed the La Nina factor will be positive for the 2011 production particularly in the second-half of the year. — Bernama

Source : Business Times

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