Palm oil stockpiles to decline further

This is the 3rd straight month of decline while exports climbed 4.2% to 1.78m tonnes on pent-up demand for the vegetable oil


MALAYSIA’S crude palm oil (CPO) stocks could decline further this month after falling to a three-year low in July, as production continues to be suppressed due to the cyclical low season before entering into a peak cycle in September.

CGS-CIMB Securities Sdn Bhd analyst Ivy Ng expects palm oil inventory to drop by 1% month-on-month (MoM) to 1.67 million tonnes at the end of August from 1.7 million tonnes in July, while exports should fall by 5% on a monthly basis to 1.78 million tonnes.

“In the first 10 days of August, exports declined by 5% to 6%. We expect demand for palm oil for food consumption to improve ahead of the celebration of the mid-autumn festival on Oct 1, 2020,” she wrote in a recent report.

According to data from the Malaysian Palm Oil Board, the country’s palm oil stockpile fell to 1.7 million in July, the lowest since June 2017 and down 10.55% from 1.9 million in the previous month.

This was the third straight month of decline, as the production of CPO slipped 4.1% to 1.81 million tonnes in July from 1.89 million in June, while exports climbed 4.2% to 1.78 million tonnes on pent-up demand for the vegetable oil.

CGS-CIMB Securities expects CPO prices to trade within the range of RM2,400 to RM2,800 per metric tonne in August following the current tight stockpile situation.

The benchmark CPO futures contract price closed at RM2,683 a tonne yesterday on Bursa Malaysia Derivatives Exchange Bhd after having rebounded from below RM2,000 levels in May.

The July stock level was 1% above its forecast of 1.67 million tonnes due to lower than expected exports. The higher than expected stocks and strong production in July relative to historical levels will likely keep the CPO price rally in check, Ng said.

She added that palm oil exports to India last month had gradually recovered to the level seen prior to India’s restrictions on refined palm oil exports.

“The restocking activity is due partly to low stocks in consuming countries and stronger demand from end customers as the economy reopens,” Ng said.

This is expected to continue this month albeit at a slower pace, boosted by Malaysia’s zero export tax and low palm oil stock levels in China and India.

Palm oil exports to India jumped 85% MoM in July to 455,299 tonnes while volumes to the European Union increased 33.68% to 170,208 tonnes. Palm oil volumes to China, however, fell 17.87% MoM to 288,648 tonnes.

However, the better outlook for palm oil could come at the expense of weaker biodiesel demand as the rising CPO price has further worsened the economic viability of biodiesel, which may affect the national biodiesel mandate, Ng added.

Plantation firms may also have labour troubles once production ramps up in the final quarter of the year, RHB Research Institute Sdn Bhd equity research VP Hoe Lee Leng said.

“For now, I don’t think the planters are facing difficulties because while some of them do have labour shortages, production is quite low.

“They will probably start having problems in the peak month during the fourth quarter as there is a lack of harvesters,” she told The Malaysian Reserve.

Hoe added that while the government has exempted three sectors including plantation from the foreign labour hiring ban, the labour shortage issue would still remain as long as travel restrictions are imposed.

In June, the government imposed a ban on new intakes of foreign workers across all industries until year-end, in a move aimed at prioritising jobs for locals as unemployment rose amid the pandemic.

Last month, Deputy Human Resources Minister Awang Hashim said the foreign worker hiring freeze would be lifted for the construction, plantation and agriculture sectors.

Source : The Malaysian Reserve

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