MPOB Statistics June 2010

Production mildly higher m-o-m
June production came in marginally higher m-o-m by 2.6% as the industry adjusts back into periods of higher production. Comparing June production on a y-o-y basis shows a slight decline of 1.8%. To note, on a cumulative basis, 6M10 production is still some 0.7% above that of 6M09.

We believe that production should continue to strengthen from here albeit at a slightly muted phase given the effects of the El Nino earlier this year.

To note, the government recently lowered their full year production target from 18.1m mt to 17.7m mt. Only slightly up from 2009’s 17.56m mt level.

Exports up 5.5% m-o-m driven again by China
Exports ticked up slightly by 5.5% m-o-m and were up 12.6% if compared to May 2009. Cumulative 6M10 exports growth has slowed down 9% as compared to the 12% rise from 5M numbers. Key drivers for exports continue to be China, while exports to India continue to be weak. Should exports continue to be strong going into 2H10, we view that it could change our neutral scenario for the sector. However, going into the peak production period, supply and demand may continue to level out against each other hence there being no catalyst for CPO prices to spike.

Stock levels fall to 1.45m mt, still manageable
With more exports than production during the month, Malaysia stock levels fell by 7.1% m-o-m but we view these levels still very much manageable. Looking at the stock to production ratio falling close to 1x, this could be looking a little concerning in the interim period but we highlight again that the industry is going into the peak production cycle period in 4Q hence the ratio is expected to tick up in a couple of months.

Maintain Neutral
We continue to hold our Neutral view on the sector and see no supply or demand shocks in sight for now. This, coupled with bearish news from the soybean market which is flooded with supplies, should keep CPO prices tightly range bound. The drop in stock levels may induce some interest in CPO prices over this week but for the rest of 2010, we expect softer price action and cite a range of RM2,200 to RM2,500 per mt which gels with our full year average selling price estimate of RM2,400 per mt.

MPOB June 2010 report is not all that "cantik"

FCPO SELL INTO STRENGTH