#Focus* CPO hit by record stocks again; further price falls seen

KUALA LUMPUR (Jan 11): Malaysia’s crude palm oil (CPO) inventory for December hit another record high and due to this stubbornly high stocks level, CPO prices are expected to decline until there are signs that stocks ease.

Yesterday, official data showed end-December CPO stocks grew 2.4% month-on-month to hit 2.63 million tonnes, a record high for the fourth consecutive month, as exports continued to slow and output came stronger-than-expected.

“Prices have to be depressed further so that buyers will come in. China’s ports are full of edible oils and with its new stringent import standard, we can’t rely on China now. CPO prices will have to fall to RM2000-2220 to clear stocks,” said Jim Teh, senior trader/founder of Interband Group.

CPO prices ended at around RM2,275 per tonne yesterday.

Teh told theedgemalaysia.com that he foresees the downtrend in prices to last for two months and if CPO prices persist at current prices, end-January inventory may risk rising again.

At 11.27 am today on Bursa Malaysia, February CPO futures fell RM25 or 1% to RM2314 per tonne, while March CPO futures declined 24 ringgit to RM2363 and April was down RM26 to RM2393.

Meanwhile, securities analysts covering plantation stocks are cautious on their forecasts.

“The record stockpile in December is negative for CPO prices as this suggests stocks are more burdensome than market expectations. This may further delay the recovery in CPO prices until stocks fall back to the 2 million tonne mark,” wrote Ivy Ng, analyst at CIMB Research.

But she projected end-Jan 2013 stocks to fall by 1% to 2.59 million tonnes as she expected exports to outweigh output.

“CPO prices will perk up in the first quarter as palm oil output falls and demand picks up due to CPO’s attractive pricing versus soybean and crude oil,” she added in her report.

In a report, Maybank KE Research said: “We maintain our view that stockpile will recede back to 2 million MT in the first half of 2013 with consequential CPO price recovery.”

“We expect CPO price to recover in the first half of this year on receding stockpile, aided by seasonally weaker CPO production and Malaysia’s new CPO export tax structure. This is further supported by the attractively wide price discounts of CPO to soyoil and rapeseed oil,” it added.

Though HwangDBS Vickers Research opined local CPO inventory may be close to peaking, like other major research houses it did not offer views on near-term price trend.

“While bumpy, we expect sustained palm oil price recovery in 1H13, but prices could weaken again in 2H13 on strong year-on-year supply growth,” the research house said.

Most analysts are maintaining a “neutral” call on the sector.

This may be due to the fact that apart from the higher-than-expected stocks, there was a 25% dip in palm oil exports in the first ten days of January 2013 versus the corresponding period in December 2012. This could temporarily stall the recovery in CPO prices until stocks start to ease.

Interband Group’s Teh noted that Indonesia is actively promoting its palm oil to China, which buys the commodity from Indonesia due partly to lower prices and partly to consideration for good bilateral relations.

But for the local palm oil industry, not all is dim.

The good news is that local refiners are regaining their international competitiveness, following the new export duty structure implemented by the government since Jan 1.

The recent reinstatement of the biodiesel tax credit of US$1 per gallon in US, plus the high crude oil price, may also provide some form of price support for CPO.

While CIMB advocates buying integrated player Wilmar International, which is seen as a beneficiary of high palm oil stocks, Maybank KE rates Sime Darby, Sarawak Oil Palms and First Resources as its top buyes.

HwangDBS sees KLK as fully valued at current prices.

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