MALAYSIA'S March palm oil output of 1.211 million tonnes, 2% higher from a month before, was significantly below our forecast of 1.494 million tonnes, as fresh fruit bunch (FFB) yields in east Malaysia were 18% below the same month last year.
While those in Peninsular Malaysia were 13% lower year-on-year, FFB yields should typically recover in March, after bottoming in February. We expect the yields to pick up seasonally, the pace may no longer match our current expectations.
The March 2012 Malaysian Palm Oil Board data also revealed that the pace of exports had increased by 11% month-on-month to 1.343 million tonnes, albeit less than we had anticipated.
March shipments to the European Union, Egypt and Pakistan were particularly strong, offset by lower exports to China.
The combination of higher exports and lower-than-expected output had accordingly resulted in an inventory drawdown of 103,000 tonnes to 1.959 million tonnes. This was lower than our forecast 2.091 million tonnes.
With FFB yields having failed to pick up in March, our April output forecast of 1.533 million tonnes looks optimistic while our export forecast of 1.502 million tonnes may be a little aggressive.
Hence, April palm oil stockpile is likely to drop below our current forecast of 2.018 million tonnes. We will reduce our Malaysian supply forecast from the current 19,400 tonnes, mainly on account of slower-than-expected FFB yield recovery.
Imputing this, we believe there is less scope for any major drop in palm oil prices for the rest of the year, as we will also likely cut soybean supply forecast due to dryness in South America.
Our preferred picks are Genting Plantations Bhd, Sime Darby Bhd, First Resources Ltd and Wilmar International Ltd. We like these counters for their still attractive upsides to our target prices despite our low crude palm oil (CPO) price forecasts. We are reviewing our CPO prices with upside bias.
Assuming we raise our 2012-2014 forecasts of Brent crude oil prices to between US$112 and US$115 per barrel, our CPO prices will be RM3,180, RM3,010, and RM2,960 for the three years respectively.
However, these have not yet imputed any cut in soybean supply and stronger ringgit, rupiah and Singapore dollar relative to our previous forecasts.