Strong palm oil production and high August inventory may lead to uninspiring CPO price movement till November.
Zero export duty and present low CPO price vis-a-vis gas oil prices can help stimulate demand over next 2-3 months.
Meaningful CPO price recovery to >MYR2,400/t may only be seen from November 2014. Maintain our 12M NEUTRAL view.
Zero CPO export duty announced by the Malaysian government for the months of September and October is seen as a step in the right direction as export estimates by independent cargo surveyors – Intertek/SGS jumped 41%/36% MoM for the first 10 days of Sept.
We understand orders for biodiesel producers have picked up substantially since August owing to the huge CPO price discount to gas oil price. Expect deliveries to pick up in September/October.
We had earlier highlighted that it was important for Malaysian stockpile to stay below the 2m MT level for the rest of 2014 to lift CPO price back to above MYR2,600/t level in 4Q14. This is no longer valid. Now we think CPO price will to trade sideways between MYR1,900-2,200/t till early November and thereafter above MYR2,400/t by year end. But we maintain our view that there is limited downside to current CPO price expecting stronger demand from the energy sector as long as gas oil prices stay firm.
We have recently revised downwards our 2014 CPO ASP forecast to MYR2,500/t (previously MYR2,600/t). But judging from recent developments, 2014 CPO ASP may now average closer to MYR2,400/t. Our CPO ASP assumption for 2015-16 is unchanged at MYR2,600/t as supply growth will be muted in 2015 after such strong recovery in 2014. We maintain our Neutral view on the sector with selective BUYs in Bumitama Agri, First Resources, Wilmar, Astra Agro Lestari, Ta Ann, Sarawak Oil Palms, TSH Resources, Sime Darby and Boustead Plantations. We advocate SELLs on IOI Corporation and TH Plantations for their steep valuations.
Zero export duty and present low CPO price vis-a-vis gas oil prices can help stimulate demand over next 2-3 months.
Meaningful CPO price recovery to >MYR2,400/t may only be seen from November 2014. Maintain our 12M NEUTRAL view.
What’s New
The Malaysian Palm Oil Board’s (MPOB) August 2014 inventory was above market expectations at 2.05m MT (+22% MoM, +23 YoY) largely due to stronger-than-expected August production at 2.03m MT (+22% MoM, +17% YoY). The strong August production was partly due to a backlog of harvesting, affected by Ramadhan in July.Zero CPO export duty announced by the Malaysian government for the months of September and October is seen as a step in the right direction as export estimates by independent cargo surveyors – Intertek/SGS jumped 41%/36% MoM for the first 10 days of Sept.
We understand orders for biodiesel producers have picked up substantially since August owing to the huge CPO price discount to gas oil price. Expect deliveries to pick up in September/October.
What’s Our View
Monthly production may have peaked in August for 2014 but we expect September and possibly October production to be around 1.9m-2.0m MT before dropping off sharply in November/December.We had earlier highlighted that it was important for Malaysian stockpile to stay below the 2m MT level for the rest of 2014 to lift CPO price back to above MYR2,600/t level in 4Q14. This is no longer valid. Now we think CPO price will to trade sideways between MYR1,900-2,200/t till early November and thereafter above MYR2,400/t by year end. But we maintain our view that there is limited downside to current CPO price expecting stronger demand from the energy sector as long as gas oil prices stay firm.
We have recently revised downwards our 2014 CPO ASP forecast to MYR2,500/t (previously MYR2,600/t). But judging from recent developments, 2014 CPO ASP may now average closer to MYR2,400/t. Our CPO ASP assumption for 2015-16 is unchanged at MYR2,600/t as supply growth will be muted in 2015 after such strong recovery in 2014. We maintain our Neutral view on the sector with selective BUYs in Bumitama Agri, First Resources, Wilmar, Astra Agro Lestari, Ta Ann, Sarawak Oil Palms, TSH Resources, Sime Darby and Boustead Plantations. We advocate SELLs on IOI Corporation and TH Plantations for their steep valuations.
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