KUALA LUMPUR:
Crude palm oil (CPO) price still remains under pressure, said Affin
Investment Research, brought about by higher CPO production, as well as a
month-on-month decline in exports.
"Despite the Ramadan holidays, when a large number of migrant workers returned to Indonesia, CPO production in July 2014 increased by 6.1% month-on-month to 1.67 million metric tonnes," said the research house on Tuesday.
In Peninsular Malaysia, production saw an 8% on-month increase while production in Sarawak gained 17.8%. However, production in Sabah fell 3.3% due to lower fresh fruit bunches and oil yields. However, year-on-year, production in July 2014 is 0.6% lower than in July 2013.
Affin Research said the higher CPO production together with a 2.3% month-on-month decline in exports and lower domestic consumption contributed to a slight increase in closing stocks from 1.66 million tonnes in June 2013 to 1.68 million tonnes in July 2014.
Exports to key importing countries, with the exception of India, declined.
Weak export growth, as well as prospects of a bumper US soybean harvest trimmed locally delivered CPO average selling price to RM2,404 per metric tonne in July 2014.
In addition, the announcement of the delay in the implementation of the B5 mandate in East Malaysia to December 2014, further contributed to the poor sentiment in the futures market.
Meanwhile, weather-wise, the latest US National Oceanic and Atmospheric Administration advisory stated that forecasters expect El Nino to emerge during August to October, peaking at weak strength during the late fall and early winter.
Although there are many short-term negatives, Affin Research said there are a number of medium to long-term positives, including the fact that Malaysia and Indonesia remain committed to the B10 biodiesel mandates and Brazil is moving to B7 in November.
Also, the palm oil premium over crude has significantly narrowed; palm oil closing stock-to-exports ratio has declined to 1.1 months in July 2014; and the stock-usage ratio for eight major oils are expected to be tighter in 2014 to 2015.
Affin Research maintains its "overweight" rating on the sector with CPO average selling price assumptions at RM2,700 per tonne in 2014 and RM2,850 per metric tonne in 2015 to 2016.
Key downside risks include higher-than-expected soybean and palm oil production; weaker-than-expected global economic recovery; and slow implementation of biodiesel mandates in Indonesia and Malaysia.
"Despite the Ramadan holidays, when a large number of migrant workers returned to Indonesia, CPO production in July 2014 increased by 6.1% month-on-month to 1.67 million metric tonnes," said the research house on Tuesday.
In Peninsular Malaysia, production saw an 8% on-month increase while production in Sarawak gained 17.8%. However, production in Sabah fell 3.3% due to lower fresh fruit bunches and oil yields. However, year-on-year, production in July 2014 is 0.6% lower than in July 2013.
Affin Research said the higher CPO production together with a 2.3% month-on-month decline in exports and lower domestic consumption contributed to a slight increase in closing stocks from 1.66 million tonnes in June 2013 to 1.68 million tonnes in July 2014.
Weak export growth, as well as prospects of a bumper US soybean harvest trimmed locally delivered CPO average selling price to RM2,404 per metric tonne in July 2014.
In addition, the announcement of the delay in the implementation of the B5 mandate in East Malaysia to December 2014, further contributed to the poor sentiment in the futures market.
Meanwhile, weather-wise, the latest US National Oceanic and Atmospheric Administration advisory stated that forecasters expect El Nino to emerge during August to October, peaking at weak strength during the late fall and early winter.
Although there are many short-term negatives, Affin Research said there are a number of medium to long-term positives, including the fact that Malaysia and Indonesia remain committed to the B10 biodiesel mandates and Brazil is moving to B7 in November.
Also, the palm oil premium over crude has significantly narrowed; palm oil closing stock-to-exports ratio has declined to 1.1 months in July 2014; and the stock-usage ratio for eight major oils are expected to be tighter in 2014 to 2015.
Affin Research maintains its "overweight" rating on the sector with CPO average selling price assumptions at RM2,700 per tonne in 2014 and RM2,850 per metric tonne in 2015 to 2016.
Key downside risks include higher-than-expected soybean and palm oil production; weaker-than-expected global economic recovery; and slow implementation of biodiesel mandates in Indonesia and Malaysia.
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