PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 3 Dec 2020, 9:02 AM


Plantations - Palm Oil Stockpiles Fall to 3-Year Low

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We saw another encouraging palm oil data in July as inventories fell to 3-year low of 1.69m mt, led by continuous growth in exports amid a contraction in production. CPO prices have performed well recently, gaining more than 19% in the last one month to settle at RM2,853/mt. We are currently in the midst of reviewing our CPO price forecast. Also note that year to-date, CPO prices averaged at RM2,510/mt. Maintain Neutral on the sector and our preferred pick is Sarawak Plantation.

  • Palm oil inventories decline for third straight month. Led by stronger CPO exports and unexpected decline in production, palm oil inventories saw a bigger monthly drop in July, down 10.6% compared to a decline of 6.5% in the previous month. The July palm oil inventory level of 1.69m mt was also the lowest level since June 2017. Meanwhile, stock-to-usage ratio dipped from 7.7% to 6.6%.
  • Bolstered by strong buying interest from India. Palm oil exports registered monthly gain for the 5th month, up 4.2% to 1.78m mt, the highest level since Aug 2016. The strong exports growth was mainly driven by India (+85.1%), EU (+33.7%) and US (+9.7%), which was partly offset by weaker demand from China (-17.9%) and Pakistan (-12.1%). The stronger exports to India and EU could be partly due to restocking activities following the easing of movement control and concerns over a potential second wave of Covid-19.
  • Production down on lower productivity. Malaysian monthly palm oil production fell 4.1% MoM but rose 3.8% YoY. We attribute the drop in monthly production to the long holiday break, namely Sarawak Independence Day and Hari Raya Qurban, in July, which resulted in lower productivity. The drop in July was also partly due to higher production base in June, which saw the highest level of 1.88m mt this year. Production in Peninsular Malaysia softened by 4.9% MoM while East Malaysia contracted by 3% MoM.
  • Expecting encouraging growth for 2Q results. Based on the compilation of output data from all the plantation companies under our coverage, almost all plantation companies except Genting Plantations, registered stronger FFB production during the quarter. Sarawak Plantation notched up the strongest FFb production growth, up 47.4% YoY, followed by TSH, 9%.

Source: PublicInvest Research - 11 Aug 2020

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