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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 19 Jul 2019, 8:51 AM

 

Plantations - The Steepest Inventory Drop since Aug 2016.pdf

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Malaysian palm oil inventories in May shrank to 2.45m, the lowest level seen since July as domestic demand and exports picked up significantly. Despite the sharp decline in inventory, CPO prices remained muted as market is wary that it may not be sustainable with high production cycle kicking in soon. At the point of writing, CPO futures stood at one-month low of RM1,986/mt, which is a barely break-even level for small and inefficient players. Despite the hiccups, we see a recovery for CPO prices with a range of RM2,100/mt- 2,300/mt) in 2H on the back of stronger demand from China and India. We maintain our full-year average CPO price forecast of RM2,200/mt (YTD: RM1,997/mt). Neutral on the sector outlook and Ta Ann is our top pick for the sector.

  • Inventories contracted to the lowest level in 10 months. May palm oil inventory retreated 10.3% MoM to 2.44m mt, the steepest fall since Aug 2016. Stock/usage ratio dropped from 11.9% to 10.1%. The sharp decline in inventories was mainly attributed to encouraging demand from both overseas and domestic markets.
  • Strongest export level since Aug 2016. Palm oil exports registered growth for a third straight month, up 3.5% MoM to 1.71m mt, which was also the highest level seen since Aug 2016. The encouraging exports data was mainly contributed by EU (+42.6%), India (+0.9%) and US (+330.6%), which was partly offset by weaker demand from China (- 36.8%) and Pakistan (-10.1%). YTD, exports rose 12.5% YoY, driven by major consuming countries except Pakistan. India registered the strongest growth, up 75% YoY, thanks to the preferential import duty on refined palm oil. China, which saw the strongest CPO demand from Malaysia since 2015, as they switch their demand from soybean oil to palm oil due to the impact of African swine flu issue.
  • Unexpected increase in CPO production. Malaysian palm oil production unexpectedly rose 1.3% MoM to 1.67m mt, led by better contribution from both Peninsular Malaysia (+1.2% ) and East Malaysia (+1.5%). We foresee a decline in June’s CPO production due to a long holiday break.
  • Domestic consumption rebounded strongly. Local consumption saw a rise of 21% MoM to 303m mt, likely led by more cooking oil consumption during the festive period and the push for biodiesel consumption, B10.

Source: PublicInvest Research - 13 Jun 2019

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