KUALA LUMPUR: CIMB Equities Research is maintaining its "Underweight" stance on the PLANTATION []s sector despite Malaysia's palm oil stocks fell 3% on-month to 1.41 million tonnes at end-July 2010 to a one year low.
The research house said on Wednesday, Aug 11 the stockpile was below its prediction of 1.42 million tonnes but above market forecasts of 1.39 million tonnes as it had underestimated exports.
"For August, we estimate that Malaysia's CPO stock level will inch 1% higher on-month to around 1.42 million tonnes as we estimate the 2% on-month seasonal uptick in output will be sufficient to satisfy demand from both the domestic and export markets," it said.
CIMB Research said although the low stockpile is good news for CPO price, it is retaining its Underweight call on the
Malaysian plantation sector.
The factors are due to its less upbeat view on CPO price in 2011, which will slow down the earnings momentum, as well as our expectation that palm oil stock will bottom in July 2010.
The second factor is Malaysian planters' premium valuations relative to regional peers, and thirdly, the downside risk to our CPO price forecasts if Europe scales back biodiesel incentives to contain fiscal spending.
For exposure to more liquid play on pure CPO planters in the region to take advantage of potential spike in 3Q CPO
price, it recommended Golden Agri in Singapore.
Elaborating on the plantation stockpile, it said it was below its expectation but above consensus. Malaysia's palm oil stocks fell 3% on-month to 1.41 million tonnes at end-July 2010 to a one year low as exports and local consumption exceeded local production.
This marked the seventh straight month of declining palm oil stocks in Malaysia. The end-July stockpile of 1.41 million tonnes is below CIMB Research's forecast of 1.42 million tonnes but above the 1.39 million tonnes average polled by Reuters in early July.
"The reason for the lower palm oil stockpiles against our forecast was higher-than-expected exports. This will be supportive of near-term CPO price as it suggests tighter-than-expected supply. The palm oil inventory at end-July represents a stock/average monthly export coverage ratio of 1.3 months, which is at the low end of the historical range," it said.
For August, it estimated that Malaysia's CPO stock level will inch 1% higher on-month to around 1.42 million tonnes as the 2% on-month seasonal uptick in output it is projecting is expected to satisfy demand from both the domestic and export markets.
CIMB Research said it expected export demand to decline 1% on-month in August as consumers may defer some of their purchases due to the higher selling prices.
Exports from Malaysia fell 14% in the first 10 days of August from the previous month, independent market surveyor Societe Generale de Surveillance revealed on Tuesday. Rival Intertek said shipments were 17.4% lower.
As for local CPO price, it said the price fell 2.3% on-month but grew 16% on-year to average RM2,453 per tonne in July 10. This brings the Jan-July 10 average CPO price to RM2,528 per tonne, which is an increase of 14% from last year's RM2,206.
"The average price achieved is broadly in line with our full-year expectation of RM2,500 per tonne as we foresee a softening of CPO price in the later part of the year when the peak production season is underway and weather concern eases," it said.
The research house said on Wednesday, Aug 11 the stockpile was below its prediction of 1.42 million tonnes but above market forecasts of 1.39 million tonnes as it had underestimated exports.
"For August, we estimate that Malaysia's CPO stock level will inch 1% higher on-month to around 1.42 million tonnes as we estimate the 2% on-month seasonal uptick in output will be sufficient to satisfy demand from both the domestic and export markets," it said.
CIMB Research said although the low stockpile is good news for CPO price, it is retaining its Underweight call on the
Malaysian plantation sector.
The factors are due to its less upbeat view on CPO price in 2011, which will slow down the earnings momentum, as well as our expectation that palm oil stock will bottom in July 2010.
The second factor is Malaysian planters' premium valuations relative to regional peers, and thirdly, the downside risk to our CPO price forecasts if Europe scales back biodiesel incentives to contain fiscal spending.
For exposure to more liquid play on pure CPO planters in the region to take advantage of potential spike in 3Q CPO
price, it recommended Golden Agri in Singapore.
Elaborating on the plantation stockpile, it said it was below its expectation but above consensus. Malaysia's palm oil stocks fell 3% on-month to 1.41 million tonnes at end-July 2010 to a one year low as exports and local consumption exceeded local production.
This marked the seventh straight month of declining palm oil stocks in Malaysia. The end-July stockpile of 1.41 million tonnes is below CIMB Research's forecast of 1.42 million tonnes but above the 1.39 million tonnes average polled by Reuters in early July.
"The reason for the lower palm oil stockpiles against our forecast was higher-than-expected exports. This will be supportive of near-term CPO price as it suggests tighter-than-expected supply. The palm oil inventory at end-July represents a stock/average monthly export coverage ratio of 1.3 months, which is at the low end of the historical range," it said.
For August, it estimated that Malaysia's CPO stock level will inch 1% higher on-month to around 1.42 million tonnes as the 2% on-month seasonal uptick in output it is projecting is expected to satisfy demand from both the domestic and export markets.
CIMB Research said it expected export demand to decline 1% on-month in August as consumers may defer some of their purchases due to the higher selling prices.
Exports from Malaysia fell 14% in the first 10 days of August from the previous month, independent market surveyor Societe Generale de Surveillance revealed on Tuesday. Rival Intertek said shipments were 17.4% lower.
As for local CPO price, it said the price fell 2.3% on-month but grew 16% on-year to average RM2,453 per tonne in July 10. This brings the Jan-July 10 average CPO price to RM2,528 per tonne, which is an increase of 14% from last year's RM2,206.
"The average price achieved is broadly in line with our full-year expectation of RM2,500 per tonne as we foresee a softening of CPO price in the later part of the year when the peak production season is underway and weather concern eases," it said.
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