Palm oil inventory in May is projected to rise to the highest level since October last year, given the anticipated improved output in the same month under review, says CGS-CIMB Research.
In its latest agribusiness report, CGS-CIMB has estimated that local palm oil inventory would grow by 12% month-on-month (m-o-m) to 2.28 million tonnes at the end of May.
Over the past 10 years, Malaysian palm oil inventory has fallen by an average of 1.4% m-o-m in the month of May.
The Malaysian Palm Oil Board is expected to release the latest palm oil statistics for May next Wednesday.
Findings from a survey of palm oil areas by the CGS-CIMB futures team also revealed that local crude palm oil (CPO) output probably grew 3% m-o-m (+2% year-on-year) to 1.71 million tonnes in May.
“Our projected rise in CPO output in May is stronger than the historical trend and would rank as the strongest m-o-m growth in output for May since 2017.
“Over the past 10 years, CPO production posted an average 1.4% m-o-m decline in May. However, this year is different as workers are not able to return to their home country to celebrate Hari Raya due to Covid-19.
“As such, CPO production did not see the usual dips. Following the recovery in yields, our production estimates for May of 1.71 million tonnes is the highest achievement since 2015, ” added the research unit.
CGS-CIMB also pointed out that palm oil exports likely grew by 6.5% m-o-m (but fell 23% y-o-y) based on average export statistics by cargo surveyors by SGS, Intertek Testing Services (ITS) and Amspec Malaysia, due to restocking activities.
The weaker exports are due to restricted movements imposed by many governments around the world in May to curb the spread of Covid-19.
This has significantly reduced the demand for palm oil from the hotel, restaurant and catering sectors, as well as biodiesel usage due to lower diesel consumption.
On CPO price, CGS-CIMB said the average price fell by 10% m-o-m but rose 6% y-o-y to RM2,072 per tonne in May due to the expected recovery in palm oil supplies in the coming months, coupled with sluggish demand from key consuming countries and concerns over the sustainability of the B30 mandate.
“The concerns over rising stocks are partially offset by expectations that India will raise its purchase of palm oil in June to replenish stocks, and Indonesia’s move to raise export levy by US$5 per tonne to support the biodiesel mandate has boosted confidence that the B30 mandate will be carried out.”
On the other hand, the 4% rise in CPO price since May 31 to RM2,374 per tonne could be driven by the reduction in export tax to 0% in June, which improves the competitiveness of Malaysia’s CPO versus Indonesia.
“We project CPO prices to trade in the range of RM2,200 to RM2,400 per tonne this month. We also maintain our sector neutral rating with key support will come from stronger demand and higher crude oil prices, ” it said.