Crude Palm Oil Price

RM2363  ▼ 24 ▼ -1.03%

Regional Plantation-  Inventory ends higher in 2012, coupled with the better production growth  in 2013, CPO price is unlikely to perform in 2013. Maintain  UNDERWEIGHT.

Inventory ends higher at 2.63m tonnes  (+2.4% mom, +27.6% yoy) in Dec 12, in line with our expectation but above consensus expectation. This was mainly due to the better-than-expected CPO production of 1.78m tonnes (-5.9% mom, +19.1% yoy) while exports remained flat at 1.65m tonnes (-0.7% mom, +3.7% yoy).

Better CPO production in 2013.  We are expecting better CPO production in 2013 of 19.0m-19.3m tonnes on strong yield recovery and no weather interruption. In 2012, Malaysian Palm Oil Board (MPOB) reported CPO production of 18.8m tonnes (-0.7% yoy), above our expectation of 18.4m tonnes on strong production in Nov and Dec 12.

Average CPO price in 2012 of RM2,855/tonne  (-12.9% yoy) is slightly below our expectation of RM2,900/tonne. For 2013, we are expecting the average CPO price to stay at RM2,900/tonne and trade between RM2,500/tonne and RM3,200/tonne,  capped by the high inventory level carried forward from 2013 and better production growth. Nevertheless, inventory would likely to be on a downtrend in 1Q13 on low production season but remain high at 1.8m-1.9m tonnes.

Maintain UNDERWEIGHT.  Plantation  stocks are expected to underperform the market when CPO price trades sideways. SELL IOI Corporation (IOI MK/SELL/Target: RM4.45), Golden Agri-Resources (GGR SP/SELL/Target: S$0.62), Genting Plantations (GENP MK/SELL/Target: RM6.60) and IJM Plantations (IJMP MK/SELL/Target: RM2.40).