How Singapore's agribusiness players will benefit from Malaysia's spiking palm oil supply

Stocks improved 1% to 1.66m tonnes.

According to CIMB, Malaysia’s palm oil stocks improved 1% mom to 1.66m tonnes at end-July. This is 3% below CIMB's forecast but 3% above consensus. CIMB is neutral on this news and project that CPO prices will remain range-bound as the fear of rising supplies offsets the low stocks.

For exposure to the sector, CIMB's preferred stocks are First Resources (owns one of the youngest and most profitable estates), Wilmar (a prime beneficiary of higher palm oil supplies and stocks) and IOI Corp (upside from the listing of its property arm).

Here's more from CIMB:

The big surprise came from the higher-than-expected mom improvement in production signalling the beginning of the high production season. We project palm oil stocks torise in August as the improvement in production more than offsets the exports and domestic consumption.

We keep our Neutral sector call. First Resources, Wilmar and IOI Corp remain our top picks.

Palm oil stocks in Malaysia increasedfor the first time since Dec 2012.Malaysia's stocks at end-July were up 1% mom at 1.66m tonnes, which is 3%
below our forecast but 3% aboveconsensus. The stocks were below our expectation as thebetter-than-expected exports offset stronger production.

We are neutral on the end-July palm oil stocks figure and project that the CPO price will stay range-bound. The CPO price traded higher (+2%)yesterday, buoyed by the strong 26% mom rise in palm oil exports in the first 10 days of August and the surprise 5% cut in US soybean crop forecasts by the USDA.

But this rally may not sustain due to the rising concern that stocks will increase again during the peak production season. The strong 18% mom increase in production, which represents the highest increase since Sept 2012, also indicates that the palm trees are entering the high production season.

On the demand front, CPO may start to face stiffer competition from soybean oil because of the narrowing price discount to soybean oil. We project that end-Aug stocks will rise 4% mom to 1.73m tonnes and expect CPO prices to trade in the range of RM2,200-2,400 per tonne in the near term.