Asian Palm Oil: Malaysia's stock level rose sharply in May - Deutsche Bank

Ending stock increased by 22.8% YoY in May
Malaysia's palm oil inventory rose by 22.8% YoY to 1.9m MT in May (highest since Jan 2010), driven by a 25.6% jump in production. The strong recovery in production was largely expected given the significant improvement in weather conditions. Demand has also softened with export growing by only 2.7% YoY, on the back of lower consumption in China, India and EU. We expect production to peak in Oct while demand should improve ahead of the festive seasons in Aug/Sept.

Price forecast unchanged at RM3,300 for 2011
Although we expect palm oil price to weaken on strong recovery in production in the near-term, a widening price discount to soybean oil should stimulate demand for palm oil. The discount currently stands at 14% versus last year's average of 8% (historical: 20-25%). We maintain our average price assumption of RM3,300/MT for 2011 (YTD: RM3,540; spot: RM3,250). We like upstream players such as GAR, KLK & AALI, which could deliver above average output growth.