Malaysia’s CPO inventory drops for a sixth month
Malaysia, the second largest producer of crude palm oil (CPO) in the world, announced that inventories contracted for a sixth month. According to a Bloomberg survey of growers and analysts, inventories in June were the lowest in a year.
 
Compared to May, Malaysia’s palm oil inventories in June fell 3.7% mainly due to an increase in exports. Surveyor Intertek said on 1 July that the palm oil exports from Malaysia rose 7% as compared to a month earlier. However, this may come as no surprise to some since Ramadan starts this month. Historically, consumption tends to increase during Ramadan when observers break day-long fasts with communal meals.
 
Although Wilmar tends to have a positive correlation with CPO prices, the shares fell 1% yesterday despite CPO futures ending up for the day. Macquarie Equities Research (MER) has a ‘Neutral’ rating on Wilmar, with a 12-month target price of $3.50. This is 12% higher than Wilmar’s closing price ($3.12) yesterday.
 
Wilmar states case against haze
On other news, Wilmar made a statement on Wednesday stating that the company will cease business with suppliers who are “involved in burning land for cultivation”. The world’s largest palm oil trader bans burning on its own plantations and relies on third parties for more than 90% of the palm oil for its refineries.
 
Vard tumbles with earnings warning
Vard has a rough start to the month of July, with the stock hitting a 52-week low of $0.89 on Wednesday. Investors saw a bit of a bounce yesterday (+1.7%) but the counter is still down 17% in just four days.
 
The weak performance came after the company said that it expects the 2Q financial results to be lower than market estimates. The company attributed the negative outlook to its Brazilian operations whereby “margins are impacted by further delays and cost overruns”.
 
The company is expected to release their 2Q earnings next Thursday, 11 July. MER has an ‘Outperform’ rating with a 12-month target of $1.82.

Source: Macquarie Research - 5 Jul 2013