Asia Palm Oil: CS has sector report. Note that Jul palm oil inventories and production +42% and 15% yoy respectively. Expect production in Aug to fall mom due to fasting mth, but should pick up again in Sept. Exports should continue to be strong in Aug due to festive season, but may weaken thereafter.
Watch out for: (1) Palm oil’s price discount to soyoil is high, and hence expect some switching into palm oil in the short term. (2) US soybean condition will be a key price determinant, as the crop moves into the critical development stage. (3) Rising labour costs will dampen profitability.
House remains U/w on plantation sector, and plantation stocks to trade sideways, as the sector lacks positive catalysts. Key U/p calls are IOI Corp and Sime Darby. Prefer the downstream processors, e.g,. Wilmar and Mewah.
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