Time is running out
Bullish drivers becoming history
The current bullish sentiment on CPO is premised on low soybean and palm oil inventories and the poor Argentinean soybean crop. We think these factors will have a diminishing effect on edible oil prices in the coming months. This is because the Argentinean soybean harvest is complete, and inventories should start stabilising, in our view.
Global soybean supply and inventory to improve over the next 12 months
According to Oil World’s latest issue, global soybean production may increase 14% to a record 242m tonnes in the October 2009-September 2010 season. The forecast hinges on two major crop events: 1) the US soybean harvest in September-November 2009 (which is currently in the planting phase); and 2) a recovery of the South American soybean crop in March-May 2010.
Chinese and Indian demand may weaken in H209, in our view
Chinese/Indian demand for oilseeds/edible oils has been strong in H109. However, this may weaken in H2, as we expect Chinese stockpiling activity to end. Indian palm oil import demand may also slow, as we believe the strong imports since end-2008 were due to a change in the import duty for palm oil compared with soybean oil. We believe the momentum cannot be maintained for a prolonged period.
Plantation share prices were up 18% in May; CPO price fell 6%
Driven by the equity markets and crude oil, plantation share prices in May raced ahead of the CPO price. In May, plantation share prices were up 18% MoM versus the 6% decline in the CPO price. Singapore/Indonesia plantation stocks outperformed, whereas the Malaysian plantation share prices rose at a more moderate pace.
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