• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January 2019. Palm inventory in Malaysia fell by 6.7% MoM in January 2019 after rising in the previous seven months. Palm stockpiles in Malaysia stood at 3.00mil tonnes as at end-January 2019 compared with 3.215mil tonnes as at end-December 2018. Consensus had forecast a palm inventory of 3.03mil tonnes for Malaysia in January 2019. We believe that palm inventory in Malaysia would continue falling until CPO production starts to pick up again at the end of 2Q. Palm production is expected to reach its peak in 3Q or 4Q2019.
• The MoM drop in palm inventory of 6.7% in January 2019 was led by a 3.9% fall in CPO production, 21.2% increase in palm exports and 23.1% drop in palm imports. Also, domestic disappearance was 373,313 tonnes in January 2019 compared with 292,210 tonnes in January 2018 and 342,801 tonnes in December 2017. We attribute the 9.4% YoY increase in domestic disappearance in January 2019 partly to the implementation of the B10 biodiesel policy. The Malaysia government has estimated that B10 will absorb 761,000 tonnes of palm oil from the system annually. Thiswould be about 3.7% of Malaysia’s estimated CPO production of 20.3mil tonnes in 2019F.
• Average CPO price for physical delivery in Malaysia slid by 18.1% from RM2,487/tonne in January 2018 to RM2,037/tonne in January 2019. Consensus is expecting average CPO price to be RM2,300/tonne to RM2,400/tonne in 2019F. Dorab Mistry has predicted that CPO price would rise to RM2,400/tonne by the end of March 2019 due to the decline in palm inventory in Malaysia and Indonesia. Thereafter, he expects CPO futures to invert or fall.
• CPO production in Malaysia improved by 9.5% YoY to 1.74mil tonnes in January 2019. Comparing January 2019 against December 2018, CPO output shrank by 3.9% due to seasonal factors. We believe that after being hit by the lagged impact of the El Nino last year, FFB yields in Sabah would improve in 2019F. Oil World has forecast Malaysia’s CPO production to improve by 3.5% to 20.2mil tonnes in 2019F.
• Malaysia’s palm exports rose by 10.7% YoY and 21.2% MoM to 1.68mil tonnes in January 2019. The YoY increase in palm exports in January 2019 was driven by a 57.9% improvement in demand from India and 102.3% rise in exports to China. In spite of the negative sentiment on palm oil in the EU, Malaysia’s palm exports to the EU increased by 33.6% YoY in January 2019. Anti-palm oil sentiment is growing in the EU as reflected in the proposal to label palm oil as “high risk” by the end of February 2019. On a negative note, Malaysia’s palm exports to the Turkey fell by 33.1% YoY to 60,333 tonnes in January 2019.
• We have an UNDERWEIGHT stance on the plantation sector in 1H2019. We believe that CPO prices would start softening from the end of 2Q2019 onwards due to the rise in CPO production in 3Q and 4Q.

Source: AmInvest Research - 12 Feb 2019