CPO

CPO: Crude palm oil (CPO) stockpiles in Malaysia for Jan’14 dipped to 1.93m tonnes (-3% m/m, -25% y/y) against street estimates of 1.98m tonnes, led by a rise in domestic consumption and decline in production, albeit offset by a decline in exports. The marginally lower stockpile was led by production which came in at 1.51m tonnes (-10% m/m, -6% y/y) as operations were largely hampered by heavy rainfall, while domestic consumption was up at 0.21m tonnes (+26% m/m, +43% y/y). This was offset by a seasonal slowdown in exports to 1.37m tonnes (-10% m/m, -16% y/y). Despite the overall decline in exports, China (306,000 tonnes; -16% m/m, +14% y/y), India (181,000; -12% y/y, +6% y/y) and EU (202,000; -16% m/m, +29% y/y) all recorded y/y increase, while demand from the USA and Pakistan rose on a m/m basis. Demand typically softens in the Northern Hemisphere during the winter months as palm oil solidifies below room temperature, incurring additional heating charges. Going forward, Maybank-KE notes that extreme weather conditions are hampering soybean crops both in Brazil and certain parts of Argentina, which could potentially lead to crop losses and eventuate into an easing of the bearish sentiment arising from a record South American harvest, and raise soybean prices, directly raising the appeal of palm oil prices. While the house is Neutral on the palm oil sector, recommend investors who were previously Underweight to consider building a trading position in 1Q14, in the event that current dry weather conditions in South America amplifies. The house’s top picks in the sector are Bumitama Agri (Buy, TP $1.14), First Resources (Buy, TP $2.39), Wilmar (Buy, TP $4.30), TSH Resources (Buy, TP RM3.40) and Ta Ann (Buy, TP RM4.50).