This is barring any unexpected weather anomaly especially in the northern hemisphere
by S BIRRUNTHA / pic TMR
CRUDE palm oil (CPO) prices to remain under pressure in the third quarter of this year (3Q22), before recovering somewhat in 4Q22, according to Maybank Investment Bank Bhd (Maybank IB).
Analyst Ong Chee Ting said this is barring any unexpected weather anomaly, especially in the northern hemisphere this July-August.
“Rising output and lower exports led to higher Malaysian Palm Oil Board’s (MPOB) June stockpile.
“With bloated inventories in Indonesia, Malaysia’s palm oil will likely lose market share to Indonesia in the coming months resulting in gradual pick up in MPOB’s stockpile,” Ong said in a note today.
He noted that Maybank IB is maintaining ‘Neutral’ on the regional plantations sector, while keeping its ‘Buy’ call on IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK).
According to Ong, MPOB’s June stockpile of 1.66 metric tonne (MT), an increase of 9% month-on-month (MoM) and 3% year-on-year (YoY), was 3% below street estimates.
Stockpile rose mainly on higher palm oil output (1.55MT, +6% MoM, -4% YoY) and lower exports (1.19MT, -13% MoM, -16% YoY) mitigated by higher domestic consumption (0.28MT, +5% MoM, +8% YoY).
Imports were marginally higher at 0.06MT (+2% MoM, -48% YoY).
On exports, lower MoM exports were recorded to all key destinations except Bangladesh, China, Pakistan and the US.
Monthly CPO average selling price (ASP) eased to RM6,106 per tonne (-11% MoM, +59% YoY) in June after hitting historic monthly ASP (RM6,873 per tonne) in May.
As for palm kernel, ASP eased further to its nine-month low of RM2,792 per tonne (-24% MoM, +13% YoY).
Ong said the preliminary Malaysia export estimates for shipments in the first 10 days of July 2022 by Amspec and Intertek (independent cargo surveyors) were sharply lower MoM at 308,290/330,310 tonnes (-15.2%/-20.5% MoM), respectively.
“If this export trend persists into the rest of the month, we could possibly see MPOB’s July stockpile breaching 1.8MT level,” he added.
Commenting further, he said in the US, the Department of Agriculture’s latest crop progress and condition reports (published on July 10) showed that soybean and corn conditions deteriorated somewhat over the past month due to heat and lesser-than-expected rainfall.
He added that crop conditions were, however, still within the past four years’ range.
Meanwhile, Ong said the good-to-excellent conditions of soybean has dropped to 62% week-on-week (WoW), but still better than last year’s ratio of 59%.
As for corn, he said the good-to-excellent conditions has stayed flattish WoW at 64%, but marginally lower than last year’s ratio of 65%.
“The crops are now entering crucial weather conditions in the months of July and August that will impact crop developments in the northern hemisphere.
“With a relatively normal-to-good weather, oilseeds yield in the northern hemisphere may turn out strong in the second half of 2022 (2H22) (after two years of unfavourable weather and crop yield).
“This will add pressure to CPO prices as it will coincide with CPO’s seasonal peak output in 2H22,” Ong noted.
Conversely, he said any unfavourable condition in the northern hemisphere will help sustain oil seed prices and limit CPO prices downside.