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PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 26 Mar 2019, 11:19 AM

 

Plantation - Inventories Unexpectedly Rise

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Malaysian palm oil inventories unexpectedly climbed to 3.05m mt in Feb as exports saw a sharp decline of 21.2% MoM, mainly dragged by weaker demand from China. CPO price performance was under pressure again as market is worried about the oversupply situation. At the point of writing, CPO futures fell RM5 to RM2,120/mt, the lowest level since late-Dec. The palm oil industry has less than 3 months to pare down its inventory to an optimal level before the high production season kicks in. Nevertheless, we think demand will likely pick up this month after a long holiday break in China. Maintain Neutral call on the sector outlook with a full-year CPO price forecast of RM2,200/mt. Ta Ann remains our top pick as we see a strong turnaround in the plywood segment while plantation should also improve, driven by a double-digit growth in FFB production.

  • Inventory grew unexpectedly during the shortest month. Feb palm oil inventory rose 1.3% MoM to 3.05m mt after seeing a decline of 6.7% in the previous month. The higher inventory level was a surprise to the market as consensus was looking at 2.95m mt. Consequently, stock-to usage ratio expanded from 12.3% to 15.9% as export was falling at a faster pace than production. We estimate that inventory will likely drop below 3m mt this month on the back of a strong recovery in exports.
  • Exports dropped sharply to 1.32m mt. CPO exports were down 21.2% MoM to 1.32m mt, the lowest level in 6 months. The lacklustre exports were contributed by weaker demand from all major consuming countries except India (+41%). Exports to China saw a sharp decline of 74.7% MoM likely due to a slowdown in manufacturing activities during the long holiday break for Chinese Lunar New Year celebration.
  • Domestic consumption fell 21.7% MoM. Despite the implementation of B10 biodiesel programme for transportation sector effective last month, the domestic consumption fell to a 5-month low of 276.7m mt.
  • Production falling for 4th straight month. Although CPO production dropped 11.1% MoM to 1.54m mt, the lowest level since July 2018, it was still 15% higher than a year earlier. Production in Peninsular Malaysia fell 11.9% MoM while East Malaysia dropped 10.1% MoM.
  • Back to a positive start in March. Malaysian palm oil exports for the 1st

10 days of March rose 10.7% YoY to 435,464mt, according to Intertek.

Source: PublicInvest Research - 12 Mar 2019

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