The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for September 2018. Palm inventory in Malaysia increased for the fourth time in September. Palm stockpiles in Malaysia rose by 1.4% from 2.50mil tonnes in August to 2.54mil tonnes in September. Consensus was expecting palm inventory in Malaysia to be 2.49mil tonnes as at end-September. The 1.4% MoM increase in palm inventory in September was driven mainly by a 14.4% expansion in production. The higher palm production in September was partly offset by a strong exports growth of 47.2%.

Going forward, we think that palm inventory in Malaysia would continue to rise until November or December 2018. Instead of peaking in the usual month of September or October, we reckon that Malaysia’s palm production would achieve its highest level in November or December this year due to a change in cropping patterns. Dorab Mistry has said that CPO inventory in Malaysia would reach a record level of 3.0mil to 3.3mil tonnes by December 2018. So far, the highest level of CPO inventory in Malaysia is 2.91mil tonnes, which was registered at end-November 2015.

CPO production in Malaysia edged down by 1.7% YoY to 13.9mil tonnes in 9M2018. On a monthly basis, CPO output in Sabah rose by 18.4% to 441,899 tonnes in September while in Sarawak, CPO production expanded by 12.0%. CPO output in Peninsular Malaysia climbed by 13.8% from 840,749 tonnes in August to 956,539 tonnes in September. Oil World has revised its forecast of CPO production in Malaysia for 2018E. Oil World is now forecasting CPO output in Malaysia to fall by 1.6% from 19.92mil tonnes in 2017 to 19.6mil tonnes in 2018E. Previous projection for CPO production was 20.7mil tonnes for 2018E.

Malaysia’s palm exports were flat YoY at 12.3mil tonnes in 9M2018. Although palm exports to India rose by 14.4% YoY in 9M2018, shipments to China fell by 10.8%. India was the largest buyer of Malaysia’s palm oil in 9M2018. India accounted for 15.5% of Malaysia’s palm exports in 9M2018. This was followed by China (9.9%) and Pakistan (7.1%).

We are NEUTRAL on the plantation sector in 2H2018. We have assumed an average CPO price of RM2,450/tonne for 2018F (9M2018: RM2,346/tonne). We believe that financial results of plantation companies would either be flat or slightly weaker in 3Q2018 compared with 2Q2018. According to the MPOB, average CPO price was RM2,192/tonne in 3Q2018 vs. RM2,380/tonne in 2Q2018. On a positive note, industry CPO output was 12.7% QoQ higher in 3Q2018.

Source: AmInvest Research - 11 Oct 2018