Maintain neutral: Inventories fell 6.2% month-on-month (m-o-m) (+49.6% year-on-year [y-o-y] in March to 2.32 million tonnes versus consensus estimates of 2.28 million tonnes. Despite seeing a strong rebound in production after dropping for four straight months, exports grew at a larger pace. Stock-to-usage ratio slipped from 13.9% to 10.9%.
Crude palm oil (CPO) exports recovered with a gain of 19.2% m-o-m (+23.7% y-o-y) to 1.56 million tonnes after dropping 13.3% in the previous month. All major consuming countries contributed to stronger exports except the European Union (-46.2%) as most buyers locked in orders ahead of the Ramadan celebrations and before the expiry of export duty waivers by the end of this month.
March CPO production rose 17.2% m-o-m to 1.57 million tonnes after dropping for four straight months. Both Peninsular Malaysia and Sabah and Sarawak registered strong production growth, up 21% and 13%, respectively. Going forward, we expect to see fresh fruit bunch (FFB) production increasing in the coming months after hitting the lowest level in February.
For the first 10 days of April 2018, Malaysia’s CPO exports jumped 25.6% m-o-m, according to Intertek. Average March CPO price was marginally lower at RM2,432 per tonne, though falling a more pronounced 17.5% y-o-y. A rise in exports is crucial at this point as oil palm trees will soon be entering the high production season.
We see a favourable outcome for palm oil arising from the recent US-China trade spat. Recent demand for soybean has eased substantially due to retaliation by China with the slapping of 25% tariffs on soybean. We think Malaysian palm oil exporters could benefit as Chinese buyers might switch their demand from soybean oil to the closest vegetable oil substitute, palm oil. — PublicInvest Research, April 11
Source: The Edge