KUALA LUMPUR, Jan. 11 (Xinhua) -- Malaysia's palm industry continues to face challenges after its December palm oil stockpiles rose to the highest level in two years.
Malaysian Palm Oil Board's (MPOB) data showed Wednesday that palm oil stockpile rose 6.97 percent month-on-month to 2.73 million tons in December 2017, the highest level since December 2015.
While the market is hopeful of the high inventory to shrink with the recent suspension of crude palm oil (CPO) export taxes to boost Malaysia's palm oil demand, some analysts see limited impacts from the measure.
"The (export taxes suspension) announcement may spur demand in price-sensitive markets such as India, Pakistan and China, but this is balanced by a recovering production outlook and strengthening ringgit," Kenanga Research's analyst Voon Yee Ping said in her report Thursday.
Voon also said she has yet to see a strong positive price impact on palm oil recent days, as this coincided with a continued strengthening of the ringgit to 4.00 against the U.S. dollars as of Jan. 10, from 4.05 as of end-2017.
CPO prices stood at 2,544 ringgit (637.8 U.S. dollars) per ton as of Jan. 10, according to MPOB, falling 22.26 percent when compared with the average price of 3,268 ringgit in January last year.
Voon expects CPO prices to continue trading sideways in the near term with CPO price to trend between 2,370 to 2,575 ringgit per ton in the first quarter, based on unchanged soya bean oil (SBO) discount of 60 U.S. dollars per ton and crude oil premium of 100 U.S. dollars per ton.
Voon expects Malaysia's palm stocks to remain flat at 2.71 million tonnes in January. Although the palm production may decline on wet weather and seasonal downtrend, she foresees palm demand to soften on lesser availability and slightly narrower discount between SBO and CPO.
In 2017, Malaysia's palm production rose 15 percent year-on-year to 19.9 million tons, but exports grew only 7 percent to 16.56 million tons.
Malaysian government on Monday suspended palm oil export taxes for three months to increase the competitiveness of Malaysian palm oil.
TA Securities' analyst Angeline Chin is also not overly optimistic on the tax removal as it would mostly benefit upstream players and negative for downstream players.
Concurring with Voon, Chin sees the recent appreciation in ringgit against U.S. dollar would tend to eliminate the pricing advantage, which would make the local CPO less competitive in the export space.
Meanwhile, although analysts expect Malaysia's CPO exports to China to pick up ahead of the Chinese New Year celebration, they do not see Malaysia's palm oil industry competitiveness to increase against Indonesia.
"Following the CPO export taxes suspension, Malaysia may gain more exports in terms of CPO, but it may also loss its exports in terms of refinery products," said RHB Institute's analyst Hoe Lee Leong.
She sees Indonesia remains more competitive than Malaysia in terms of refinery products.
Although China's intake of Malaysia palm oil has increased slightly, BIMB Securities Research's analyst Noorhayati Maamor also said, Malaysia is still losing its market share to Indonesia.
In comparison, China intake of Indonesian palm oil from January to October 2017 surged 29 percent year-on-year to 2.89 million tons.
"We are of the view that this momentum would continue up to Jan 2018 as China is believed to stock up its palm oil requirement ahead of Lunar New Year Celebration," Noorhayati added.
Malaysia's palm oil exports to China grew 1.87 percent year-on-year to 1.92 million tons in 2017. China was the third biggest buyer for Malaysian palm oil products after India and the European Union (EU) countries, accounted for 11.9 percent of the total export volume.
Last year, Malaysia's palm oil exports to India and EU fell 28.35 percent and 3.29 percent to 2.02 and 1.99 million tons respectively.