Crude palm oil (CPO) production rose just 4.7% in Oct 10 which was expected to be the peak in the production cycle. The increment in Oct 10 was lower than market expectation of 15% mom.
Based on ground checks, Indonesia’s production for Oct 10 also grew below expectation, in the range of 13-15% mom.
• Average CPO price at RM2,853/tonne to date, slightly above our full-year 2010 expectation of RM2,600/tonne. Thus, we are confident of meeting our estimate, which could be slightly better for 2010 as a result of the current tight supply-demand situation.
• Expecting the return of China to the export market. Exports dipped 0.5% mom in Oct 10 and current export numbers were reportedly 1.1% lower in the first 10 days of Nov 10. Despite this, we still expect China to resume an increase in edible oil purchases to replenish its inventory and take shipments before the weather starts turning cooler by end-November.
• The peak in production has passed. CPO production rose 4.7% mom as expected, but the pick-up in Oct 10 after the return of workers from Indonesia was not as strong as last year’s (i.e. Oct 09: production +27%mom). Beyond this, we expect production to fall moving into the lower production cycle in 1Q11.