• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for October 2018. Palm inventory in Malaysia increased for the fifth time in October. We think that the highest level of palm inventory in Malaysia would be recorded in either December 2018 or January 2019 in line with the increase in production. Palm stockpiles in Malaysia rose by 7.6% from 2.53mil tonnes in September to 2.72mil tonnes in October. Consensus was expecting a palm stockpile of 2.86mil tonnes for October. The 7.6% MoM rise in palm inventory can be attributed to a 6.0% increase in palm production and 3.0% drop in exports in October.
• The highest ever palm inventory was 2.91mil tonnes, which was recorded in November 2015. At that time, the monthly average CPO price was RM2,121/tonne. The monthly average palm inventory in Malaysia were 1.91mil tonnes in the past 10 years and 1.96mil tonnes in the past five years.
• Average monthly price discount between CPO and soybean oil has surged since July 2018 due to the sharp decline in CPO price in USD terms. We attribute the large discrepancy to a glut in Indonesia, which has exerted downward pressure on CPO prices. The average price discount between the two commodities widened from 21.6% in January to a large 23.9% in July, 26.8% in August and 27.2% in September. In comparison, average price discounts were only 15.3% in the past five years and 15.4% in 2017. The huge price discount between soybean oil and CPO would help support the demand for palm oil.
• CPO production in Malaysia slid by 1.7% YoY to 15.86mil tonnes in 10M2018. On a monthly basis, CPO output inMalaysia improved by 6.0% to 1.96mil tonnes in October 2018. CPO production in Sabah increased by 15.1% from 441,899 tonnes in September to 508,522 tonnes in October while in Peninsular Malaysia, CPO output expanded by 5.7% MoM to 1,010,782 tonnes. On the other hand, CPO production in Sarawak fell by 2.1% from 455,163 tonnes in September to 445,650 tonnes in October. Looking ahead, Oil World has forecast CPO production in Malaysia to rise by 3.6% from 19.6mil tonnes in 2018E to 20.3mil tonnes in 2019F.
• Malaysia’s palm exports were flat YoY at 13.83mil tonnes in 10M2018. Comparing October against September, Malaysia’s palm exports shrank by 3.0% to 1.57mil tonnes. The decline was not surprising as CPO exports had surged by 47.2% MoM in September. India’s purchases plunged by 56.5% MoM in October as demand dried up after the Deepavali period. Also, Malaysia’s palm exports to the EU tumbled by 27.2% MoM in October. On a positive note, Malaysia’s palm exports to China jumped by 94.2% MoM to 213,608 tonnes in October. Demand from the EU is usually soft during the winter season as palm oil freezes when the temperature is low.
• We are NEUTRAL on the plantation sector in 2H2018. 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 declined by 7.9% from RM2,380/tonne in 2Q2018 to RM2,192/tonne in 3Q2018. On a positive note, industry CPO output was 12.7% QoQ higher in 3Q2018.

Source: AmInvest Research - 13 Nov 2018