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PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 21 May 2019, 9:49 AM

 

Plantations - Tough 2018 But A Slow Recovery Is Expected

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Malaysian palm oil sector had a difficult ride in 2018 with the CPO price falling more than 18% to end the year at RM1,952/mt. It went down as low as RM1,717/mt, the lowest level post-subprime crisis, which was also below the break-even level for some small and inefficient plantation players. The industry is dealing with an all-time record high inventories, closing at 3.21m mt. Nevertheless, we see a gradual decline in inventories to around 2.7m mt by March. We see a full-year average CPO price of RM2,200/mt for 2019 with a Neutral outlook. Our top pick is Ta Ann.

  • Signs of easing on inventory level. Inventory in Dec saw an increase of 6.9% MoM to 3.21m mt, topping market expectation of 3.14m mt. Stock to-usage ratio expanded for third straight month, up from 14.8% to 15.7%. On the YoY basis, it was up 17.7%. Nevertheless, we see easing pressure on the high inventory levels beginning this month on the back of i) favourable Indian import duty policy, ii) low production cycle period, ii) aggressive re-stocking activities after the Chinese New Year celebration.
  • Lacklustre demand in 2018. CPO exports were marginally higher in Dec, supported by improved demand from all major consuming countries except EU (-37.3%). For the full-year, CPO exports fell 0.4% to 16.4m mt, mainly dragged by weaker demand from China (-3%), EU (-4%) and US (- 2.5%). India remains the biggest buyer for Malaysian palm oil products last year, making up 15.2%, followed by EU, 11.6%, China, 11.2% and Pakistan, 7%. It is also the fourth straight year for China losing the 2nd export destination spot to EU region.
  • Production seen falling gradually. CPO production dropped for a second straight month, down 2% MoM to 1.80m mt Production in Peninsular Malaysia was marginally lower while East Malaysia softened 3.9%. For the full-year, CPO production declined 2% to 19.5m mt, led by weaker production in Peninsular Malaysia and East Malaysia regions.
  • Off to a good start. Malaysian palm oil exports for the 1st 10 days of Jan rose 46.6% YoY to 451,845mt, according to Intertek. CPO futures also hd a good start for the year, up 5% to RM2,114/mt, as markets see signs of easing in the palm oil inventories coupled with a favourable revision in Indian palm oil import duty.

Source: PublicInvest Research - 11 Jan 2019

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