*June 2011 inventories continue to rise* The Malaysian Palm Oil Board (MPOB) reported that June 2011 *palm oil inventories continued to rise*, up 6.8% mom (+41% yoy) to 2.05 mn tons. This was below market expectations (a Reuters poll indicated 2.13 mn tons), which we believe was mainly due to stronger exports ahead of the festival season (+12.4% mom).
*Production growth trend may continue rising seasonally* *Going forward, we believe that CPO (crude palm oil) production may continue rising sequentially* until the seasonal peak, which is typically in Sept/Oct. To some extent this may be partially offset by rising exports, as we approach the festival season (i.e., Ramadhan (August), Diwali (October) and Golden Week in China (October)). Still, *we do not expect a meaningful reduction in inventories in the near term*. *Inventories may continue rising in July* According to the normal seasonal trend, *CPO production in July tends to increase mom*. Meanwhile, exports remain lackluster—cargo surveyor, SGS, estimates *palm oil exports for the first 10 days of July fell 3.3%* *mom*. If exports do not accelerate significantly, *we expect a further increase in inventories in July*. '+'
