MPOB Jul ’08 Statistics

PLANTATION sector (OVERWEIGHT) , osk
August 12, 2008

MPOB Jul ’08 Statistics

Malaysia’s palm oil inventory for July eased to 1.977m tonnes largely on a recovery in exports to China. We suspect that China had artificially suppressed its purchases earlier and used edible oil from its national reserve, which would require replenishing after the Olympics. We remain Overweight on the sector but admit that the earnings visibility for ’09 has deteriorated with the decline in CPO prices.

Production up as expected. July production came in at 1.560m tonnes, up 6.2% m-o-m and 15.0% yo- y. This is nothing out of the ordinary as production tends to go up during the Feb/Mar to Sep/Oct period. On a YTD basis, production totalled 9.761m tonnes, up 21.5% from the same period last year as 1HCY07 production was negatively impacted by floods. As production started to recover from July ’07, we believe y-o-y growth in 2H this year will be slower. The m-o-m rise in production was largely from West Malaysia, which grew 7.6% compared with Sabah’s 1.3%.

Exports up largely on China. Exports jumped to 1.403m tonnes, the highest since Oct ’06 largely due to a recovery in buying from China. Compared to Jun ’08, exports were up 25.2%. Exports to China improved to 417.9k tonnes from a dismal 235.0k tonnes in Jun ’08. This was only the third time exports to China exceeded the 400k-tonne mark (the previous times being in ’07). Exports to Muslim countries such as Bangladesh and Jordan were also significantly higher at 43.9k tonnes (+24.4k tonnes) and 84.6k tonnes (+49.7k tonnes) respectively. On the other hand, exports to the US declined to 70.6k tonnes from 90.4k tonnes a month earlier.

YTD, exports totalled 8.333m tonnes, up 16.2% from last year. China remains the biggest buyer at 2.203m tonnes, followed by the EU (1.038m tonnes), Pakistan (621.5k tonnes) and the US, 547.2k tonnes.

Inventory off peak. Despite the increase in production, the inventory level eased off from last month’s record high of 2.034m tonnes to 1.977m tonnes due to the 282.3k-tonne increase in exports. We suspect after the spike in exports to China in July, the country’s August purchase will normalise to a more sustainable 300–350k tonnes while exports to the Muslim countries could sustain at high levels ahead of the fasting month in September.

CPO price outlook. CPO price had averaged RM3,452 per tonne up to the week ending Aug 8, ’08. However, with the recent decline in CPO price to below RM3,000, our CY08 assumption of RM3,500 per tonne is at risk. We are reviewing our price assumptions at this point in time.