• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for February 2019. To everyone’s surprise, palm inventory in Malaysia rose by 1.3% MoM to 3.05mil tonnes in February instead of falling. The MoM increase in palm inventory in February was mainly due to a 21.4% plunge in exports and 16.5% climb in imports. Consensus had forecast a palm inventory of 2.95mil tonnes for Malaysia in February 2019 compared with 3.0mil tonnes recorded as at end-January. We believe that the rise in palm inventory in Malaysia in February is an aberration.
• We reckon that palm exports would pick up in March. According to cargo surveyors, Malaysia’s palm shipments rose by 10% to 11% in the first 10 days of March compared with the same period in February. The higher exports coupled with softer palm production could lead to a fall in stockpiles in March. As such, palm inventory in Malaysia may ease until the middle or the end of 2Q. After that, palm inventory may start to rise again as palm production is expected to increase from 2Q until it reaches the peak in 3Q or 4Q2019.
• Palm imports amounted to 209,864 tonnes in 2M2019 compared with 146,576 tonnes in 2M2018. We believe that downstream companies in Malaysia are increasing their imports of palm oil from Indonesia due to its cheaper price. As a gauge, the difference between IJM Plantations’ average CPO price realised in Malaysia and Indonesia was RM235/tonne in 4Q2018. Domestic disappearance amounted to 665,133 tonnes in 2M2019 vs. 478,575 tonnes in 2M2018. We attribute the increase in domestic disappearance to the implementation of the B10 biodiesel policy in Malaysia.
• CPO production in Malaysia shrank by 11.1% MoM to 1.54mil tonnes in February 2019 as there were fewer working days. On a YoY basis, CPO output rose by 12.0% in 2M2019. Average FFB yield in Sabah improved to 1.56 tonnes/ha in February 2019 from 1.41 tonnes/ha a year ago while average FFB yield in Peninsular Malaysia increased to 1.46 tonnes/ha from 1.29 tonnes/ha. After falling YoY in January 2019, average FFB yield in Sarawak grew to 1.02 tonnes/ha in February 2019 from 0.92 tonnes/ha a year ago.
• Malaysia’s palm exports slid by 21.4% MoM but inched up by 0.6% YoY to 1.32mil tonnes in February 2019. Palm oil exports to China contracted by 74.8% MoM in February while EU purchases contracted by 22.2%. On a positive note, India’s imports of Malaysian palm oil surged by 41% MoM in February. In the first two months of the year, India’s imports of Malaysian palm oil expanded by 65.6% YoY while China’s purchases improved by 62.0%.
• 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 Mar 2019