Malaysia’s palm oil inventory rose to 1.73 million tonnes in March, its first increase after five straight months of declines, as production exceeded total consumption.

KUALA LUMPUR: Malaysia’s palm oil inventory rose to 1.73 million tonnes in March, its first increase after five straight months of declines, as production exceeded total consumption.

Affin Hwang Capital said Malaysia’s crude palm oil (CPO) production in March continued to increase to 1.4 million tonnes, up 8.4 per cent month-on-month as production started to pick-up,.

But the output fell 16.4 per cent year-on-year partly due to the dry weather and cutbacks in fertiliser applications in 2019 due to low CPO prices then.

Affin Hwang believes the Covid-19 global pandemic would have an adverse impact on the supply, demand and prices of oils.

Hence, the firm kept its “underweight” call on the palm oil sector with CPO price assumptions of RM2,100-2,200 per tonne for 2020-2021, given its cautious stance on the demand outlook for palm oil and weak crude oil prices.

“Earlier, the anticipation of tight supply-demand dynamics and lower stock/usage ratios of eight vegetable oils, including palm oil, had helped lift CPO prices from mid-October 2019 to January 2020, hitting a high of RM3,100 per tonne in early January 2020.

“However, CPO prices have since retreated and are hovering at the RM2,300-2,400 levels,” it said.

Affin Hwang believes the catalyst for CPO prices in the short term would be the supply disruption and current relatively low stock.