Wednesday July 11, 2012
Palm oil stocks fall to lowest level in more than a year
PETALING JAYA: Malaysian palm oil stocks fell to its lowest level in more than a year mainly due to adverse weather, suggesting a boost in palm oil prices in the near future.
The Malaysian Palm Oil Board (MPOB) released data yesterday showing a 4.9% drop in stocks from 1.785 million tonnes in May to 1.699 million tonnes in June.
Following Bloomberg's survey, this was less than the median of 1.77 million tonnes.
The slumping palm oil stocks reflect OSK Research's report on Monday citing weather changes which will affect palm oil production.
As the probability of El Nino has increased based on the drop in the Southern Oscillation Index to minus 11.8% recently, a drought in South-East Asia is very likely, it reported.
“The El Nino weather phenomenon is imminent and may hurt palm oil production.
“This could be the initial catalyst for the commodity's price rally,” it said.
It noted that Malaysia's palm oil production for the first five months fell 7.3% due to adverse weather while May production alone sank 20.6% compared with a year ago.
“Any deterioration in weather will aggravate the already poor production, and in turn support an uptrend in palm oil price,” it said.
The research house upgraded the sector to overweight' from neutral' on the expectation of palm oil price is on the cusp of a three-year upcycle.
It also raised the average palm oil price assumption for 2013 to RM3,500 per tonne from RM3,100.
“Previous peak price of RM4,500 will likely be surpassed before this upcycle is over,” OSK added.
Yesterday, the crude palm oil price for the third month delivery was at RM3,130.
MPOB also stated that crude palm oil production grew by 6.3% from 1.383 million tonnes in May to 1.47 million tonnes last month, which was lower than Bloomberg's survey estimate of 1.5 million tonnes.
The figures represent a 16% drop from 1.75 million tonnes a year ago.
Palm oil exports rose by 8.7%, from 1.408 million tonnes to 1.531 million tonnes in June which is higher than the survey's forecast of 1.47 million tonnes.
Imports went up from 129,441 tonnes to 137,532 tonnes, a % increase.
Fresh fruit bunches price dropped to an average of RM31.59 per tonne from May's RM34.23.