Thursday 15 December 2011

Seasonally weaker production for plantations

Plantation

Maintain neutral: Lower crude palm oil (CPO) production in November was matched by lower exports resulting in the Malaysian Palm Oil Board’s monthly stock closing marginally lower as at end-November 2011 but still above the two million level, at 2.06 million tonnes.

We expect December stock level to stay above the two million mark again, which is ample, and could pressure near-term CPO price. Maintain “neutral” on the sector. Kuala Lumpur Kepong Bhd and Genting Plantations Bhd are our top “sells” for their relatively higher valuations.

Malaysia’s November CPO production was down 14.8% month-on-month (m-o-m) to 1.63 million tonnes (+11.5% year-on-year [y-o-y]) but was largely within expectations as oil palm trees enter into seasonally weaker production months.

The weaker production was matched by a 9.9% fall in exports to 1.66 million tonnes (+10.2% y-o-y). Compounded with higher imports and lower domestic consumptions, November month-end closing stock was marginally lower m-o-m (-1.5%) at 2.06 million. Except for the US and Pakistan, major markets like the EU, China and India recorded lower m-o-m demand.

Independent cargo surveyors Societe Generale de Surveillance (SGS) and Intertek (ITS) forecast a 4.6% and 5.1% drop in export estimates for Nov 1 to 10, to 436,633 tonnes and 443,699 tonnes. If this sales trend persists throughout December, we expect the high inventory of CPO of above two million tonnes to be sustained, pressuring the price.

Furthermore, CPO price discount to soyoil is now US$30 (RM95.70) per tonne below its five-year historical mean of US$161.

The latest update from the Meteorological Department suggests that the current La Nina is likely to be weak to moderate. Malaysia’s weather is generally looking like the usual monsoon season.

Slightly wet weather is expected over northern Peninsular Malaysia and parts of Sabah in December and January. Elsewhere is looking normal. And Indonesia, the world’s biggest producer, is expected to receive normal rainfall in the near term.

We maintain our average CPO price forecast for 2012 at RM2,600 per tonne (year-to-date 2011: RM3,284 per tonne) as we have imputed an external economic slowdown that would hurt global demand. We advocate “buy” on under-appreciated mid-caps, TSH Resources Bhd and Sarawak Oil Palms Bhd, for their long-term value and growth propositions. — Maybank IB Research, Dec 14




Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.
Related Posts Plugin for WordPress, Blogger...