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Malaysia Daily Bulletin – 3/12/12

Bearish Outlook For CPO Futures
Crude palm oil (CPO) prices on Bursa Malaysia Derivatives is expected to be traded lower during the week due to the dim global edible oil demand. The current high level of CPO stockpile, which is likely to affect the CPO prices outlook for next year has resulted in traders adopting a cautious approach for the CPO market trading. Additionally, India’s fiscal plan to impose higher taxes on edible oil imports in order to protect its oilseed farmers may further weaken the CPO prices. The Chinese government also plans to launch strict quality standards for CPO imports at the beginning of next year that could suppress the CPO prices as well. According to cargo surveyor Intertek Agri Services, which was reported last Friday, Malaysia registered around 1.66 million metric tonnes (mt) of palm oil exports in November with a rise of 3.8 percent from a month earlier, which is a tad higher than the market expectations of between 1.62 mt and 1.65 mt.

Significance: According to an analyst, the CPO prices should trade at around the RM2,200 levels in the next four to six weeks in order to attract demand and spearhead the decline in the record stock levels.

TNB Awards RM2.5b Project To Samsung Engineering
Tenaga National (TNB) through its indirect wholly owned subsidiary, TNB Northern Energy has awarded a contract to Samsung Engineering & Construction (M) for the engineering, procurement and construction (EPC) works for the combined cycle gas turbine power plant in Prai, Penang. The project costing RM2.47 billion includes the EPC works of RM1.88 billion and the related development costs. Samsung will be responsible for the plant design and engineering, supply of power island equipment with its related auxiliaries and ancillaries as well as construction of all plant infrastructures under the EPC works. At the same date, TNB has also entered into a power purchase agreement (PPA) with its wholly owned subsidiary, TNB Prai for a two combined cycle blocks project proposed to be located at Sebarang Prai. Both parties have also signed a lease agreement whereby TNB will lease a portion of its land in Sebarang Perai Tengah to TNB Prai for the construction of the blocks.

Significance: TNB’s net assets is expected to increase by 0.56 percent with the Samsung project. Additionally, the PPA will contribute positively to its earnings upon the completion of the project and the commencement of operations of the facility.

Rubber Market Eyes Higher Trade
The Malaysian rubber market is expected to trade higher this week as the global rubber demand is expected to recover during the week. According to a recent report released by the Association of Natural Rubber Producing Countries (ANRPC), the demand for natural rubber in 2012 is expected to be slightly higher at 3.83 million tonnes (mt) compared to the previous month’s estimation of 3.77 mt. Besides that, the Thailand government’s intervention of buying its own local rubber products could indirectly support rubber prices within the region. Furthermore, Japan’s factory output unexpectedly rose in October for the first time in four months this year. This is expected to help support the weak market sentiment. “There is also some hope for the global economy following better US economic growth data in the third quarter, which would attract traders’ appetite to participate in commodity markets including rubber,” a dealer said.

Significance: Last week rubber prices fell for four consecutive days mainly attributed to the lack of rubber demand, nonetheless prices closed higher on Friday due to the technical adjustment. With the absence of the internal catalysts in Malaysia, the local market would rely on the regional market price movements such as the Tokyo Commodity Exchange (TOCOM).