• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for April 2019. Palm inventory in Malaysia slid by 6.6% to 2.73mil tonnes in April from 2.92mil tonnes in March. The MoM decline in palm inventory in April was due to a 1.4% drop in production and 52.7% fall in imports. The palm inventory of 2.73mil tonnes in April was in line with consensus estimates of 2.75mil tonnes. Malaysia’s highest ever palm stockpiles were 3.22mil tonnes as at end-December 2018.
• We believe that CPO inventory would increase from June or July onwards as palm production is expected to expand ahead of the peak output period in 2H2019. In 2018, Malaysia achieved its highest monthly CPO production in October. 2H accounted for 54% of Malaysia’s CPO output of 19.52mil tonnes in 2018 while 1H made up 46%. Average monthly palm inventory in Malaysia was 2.07mil tonnes in the past five years.

• Malaysia’s CPO production rose by 8.9% YoY in 4M2019. For the full year, Oil World has forecast Malaysia’s CPO output to increase by 3.0% to 20.1mil tonnes (2018: 19.52mil tonnes). Comparing April against March, the 1.4% decline in industry CPO production was due mainly to an 8.7% fall in output in Sabah. CPO production in Sarawak improved by 6.3% MoM to 310,239 tonnes in April while in Peninsular Malaysia, CPO output edged down by 0.2% to 924,797 tonnes.

• Palm imports declined by 52.7% from 145,695 tonnes in March to 68,987 tonnes in April. Comparing 4M2019 against 4M2018, palm imports surged by 82.7% to 424,546 tonnes. We believe that downstream companies are buying palm oil from Indonesia as CPO in Indonesia is cheaper by RM200/tonne to RM300/tonne.

• Malaysia’s palm exports inched up 2.0% MoM to 1.65mil tonnes in April 2019. Palm exports improved by 5.9% YoY in 4M2019 compared with an 8.9% increase in production. China’s palm imports rose by 17.2% MoM to 201,121 tonnes in April while palm exports to India increased by 53.5%. Comparing 4M2019 against 4M2018, China’s imports of Malaysian palm products climbed by 49.4% while India’s demand growth was robust at 41.5%.

• We have an UNDERWEIGHT stance on the plantation sector in 1H2019. We believe that CPO prices would continue to be weak due to ample stockpiles. We have an average CPO price assumption of RM2,300/tonne for Malaysia in 2019F (2018: RM2,235/tonne).

Source: AmInvest Research - 13 May 2019