PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 20 Sep 2019, 10:03 AM


Plantations - Seeing Positive Outlook

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Malaysian Palm Oil Board (MPOB) released its 2019 projection, which it expects to see a strong recovery in price from last year, banking on i) higher biodiesel mandates in Malaysia and Indonesia, ii) weaker ringgit and iii) potential emergence of El Nino event. It foresees CPO prices average at RM2,500/mt this year compared to our CPO price forecast of RM2,200/mt. YTD, CPO futures have shown encouraging performance, up 5.8% to RM2,122/mt while plantation counters have also gained by more than 5% after seeing the poor performance last year. Neutral outlook for the sector as we see no re-rating catalysts in the near-term.

  • Upbeat mood. MPOB sees a sharp fall in inventories by year-end at 2.5m mt, a 22% drop from the historic high level of 3.22m mt in 2018. It also projects that palm oil production will likely rise from 19.5m mt to 20.3m mt, an increase of 4.1% after seeing a drop of 2% last year. Meanwhile, exports is seen to rise from 16.49m mt to 17.2m mt. an increase of 4.3%. Palm oil export value is expected to surge from RM67.7bn to RM75bn on the back of stronger CPO prices. Lastly, its full year average CPO price stands at RM2,500/mt, which is 12% higher compared to 2018’s RM2,232/mt.
  • High expectation on domestic consumption. Based on the MPOB’s palm oil projection, the growth in exports is at the similar pace with the palm oil production while inventory levels are expected to fall by 720,000 mt or 22%, indicating that a surge in domestic consumption or the B10 biodiesel mandate is the main contributor to the sharp fall in palm oil inventories.
  • Looking at B20 for next year. Primary Industries Minister Teresa Kok said the government intends to increase the amount of palm oil in its biodiesel blend to 20% by next year, up from its ongoing B10 programme, which mandates palm oil use at 10% effective 1st Feb 2019 for diesel based transportation sector and B7 biodiesel mandate for the industrial sector effective 1st July.
  • Seeing more aggressive biodiesel consumption in Indonesia.

Indonesia’s energy ministry has targeted biodiesel production of 7.37m KL (6.26m mt) this year, up from 6.01m KL (5.1m mt) in 2018. Meanwhile, Indonesian Palm Oil Association (Gapki)- sees an average CPO price forecast of USD540/mt-550/mt (RM2,200-RM2,250/mt) for 2019. The world largest palm oil producer is in the midst of negotiations with Indian government on getting the similar import duty rate for refined palm as Malaysia currently does, which is enjoying a 5% lower than its Indonesian counterparts following the recent revision.

Source: PublicInvest Research - 18 Jan 2019

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