Malaysian Palm Oil Outlook

2009 Q1 Palm Oil Statistics & Stockpiles
Bullish palm oil . Malaysian palm oil stocks fell for the third consecutive month in February to the lowest level in 16 months as exports outpaced production. Palm oil stocks declined 15% mom to 1.56m tonnes, which is below market expectations of 1.6m-1.7m tonnes. We attribute the deficit to the lower-than-expected output. This news is positive as the declining stocks will ease concerns over a supply glut.

Poor weather crimped CPO supply from east Malaysia. Output fell 11% mom to 1.19m tonnes as: (1) palm trees are in their lean production season; and (2) FFB yields from east Malaysian estates were affected by heavy rainfall. Dec-Feb is typically the low production season in Malaysia. On yoy basis, palm oil output dropped 3.4% due to biological stress and flooding in parts of east Malaysia. For the fourth straight month, east Malaysian estates registered a sharper yoy drop in FFB yield of 9% compared to a 7.6% decline for estates in Peninsular Malaysia.

Weaker palm exports in Feb. Malaysian palm oil exports fell 7.2% mom as exports to all major consuming countries, with the exception of China, fell sharply mom, possibly because most of the restocking has been completed. Exports to China jumped 99.4% mom due partly to slower trade in the previous month as traders took time off during the Chinese New Year holiday. Exports to India fell 38% mom as restocking activities as well as carry-through buying on talk of a potential increase in palm oil import duties subsided. On a yoy basis, total palm oil exports climbed 18% due to the lower CPO price, restocking activities and buying on concerns over the
South American drought.

CPO price outlook
Stock level closes in on 5-year average. The sharp decline in Malaysian palm oil inventories to 1.56m tonnes brings the stock level closer to the five-year historical average stock level of 1.5m tonnes. This is good news and suggests that Malaysia is no longer carrying excessive inventories.

Worries over slower demand. However, this positive news is partially offset by concern over a potential slowdown in demand for palm oil in the coming months. It was reported that India is likely to import less palm oil in March as it stocked up in January and February, and will also see supply from domestic rapeseed crops in the next 2-3 months. Traders in China expect palm oil shipments to China to fall by as much as 10% in 2009 due to the narrowing price discount between palm oil and soya oil. The discount between CPO and soybean oil has narrowed to US$76 per tonne from US$135 per tonne in Jan. On top of that, palm oil production is expected to pick up in the coming months until around Sep-Oct.

Expectation for March palm oil stock. We expect palm oil stocks to either ease slightly or stay flattish in March as higher export demand offsets the rising palm oil output. Over the past two years, palm oil output increased by 5-9% on a mom basis in March. Exports of Malaysian palm oil products in 1-10 March rose 11% to 369,265 tonnes from 332,081 tonnes shipped between 1 and 10 February, according to cargo surveyor Intertek Testing Services. Another cargo surveyor, Societe Generale de Surveillance said exports rose by a lower rate of 1.2% to 377,306 tonnes for the same period.

ACCUMULATE PLANTATION STOCKS !!!