• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for the month of August 2019. Palm stockpiles in Malaysia fell by 5.3% to 2.25mil tonnes in August from 2.39mil tonnes in July. This was slightly above consensus estimates of 2.22mil tonnes. This was the sixth monthly decline in Malaysia’s palm stockpiles. Average monthly palm inventory in Malaysia was 2.19mil tonnes in the past two years.
• Higher palm exports led to the fall in palm inventory in Malaysia in August. Malaysia’s palm exports rose by 16.4% MoM to 1.73mil tonnes in August, which compensated for the 4.6% MoM increase in production and lower domestic disappearance. Out of the 2.25mil tonnes of palm inventory in Malaysia in August, 0.96mil tonnes were processed palm oil while another 1.29mil tonnes were palm oil in crude form.

• Domestic disappearance of palm oil eased to 284,633 tonnes in August from 340,297 tonnes in July. Comparing 8M2019 against 8M2018, domestic disappearance of palm oil increased by 13.5% to 2.46mil tonnes from 2.17mil tonnes. We continue to attribute the domestic disappearance of palm oil in Malaysia to the implementation of the B10 biodiesel policy in the transportation sector and the B7 biodiesel policy in the industrial sector, which took effect from 1 July onwards.

• Palm imports rose by 24.3% to 69,705 tonnes in August from 56,062 tonnes in July. Going forward, we think that palm imports would continue to rise. Due to eroding operating profit margins resulting from weakening global selling prices for oleochemical products, downstream companies in Malaysia may opt for cheaper feedstock from Indonesia. Malaysia’s palm imports amounted to 746,545 tonnes in 8M2019 compared with 540,390 tonnes in 8M2018.

• Malaysia’s CPO production inched up by 4.6% MoM to 1.82mil tonnes in August. CPO output in Sarawak surged by 17.0% MoM to 447,768 tonnes in August while in Sabah, CPO production climbed by 4.5%. On the other hand, CPO output in Peninsular Malaysia edged down by 0.15% MoM to 974,620 tonnes in August. We believe that the country’s CPO output would continue to rise and reach its highest level in October or November. Comparing 8M2019 against 8M2018, Malaysia’s CPO production expanded by 10.8% to 13.35mil tonnes. Oil World has forecast Malaysia’s CPO production to be 20.3mil tonnes in 2019E vs. 19.52mil tonnes in 2018.

• The 16.4% MoM increase in palm exports in August was driven by India (+22.6% MoM) and China (+237.4% MoM). We believe that Indian importers stepped up their buying of Malaysia’s palm products before the additional 5% import duty was imposed on refined palm products last week. Due to the hike, the import duty on refined palm products from Malaysia and Indonesia is now the same at 50% each. Previously, the import duty on refined palm products was 45% from Malaysia compared with 50% from Indonesia. India’s imports of Malaysia’s palm products surged by 117.7% YoY in 8M2019 while China’s demand climbed by 29.2%.

• We are keeping our UNDERWEIGHT stance on the plantation sector as CPO prices are expected to be unexciting. Although CPO prices have risen above RM2,100/tonne from RM1,900/tonne, we reckon that any upside would be constrained by large inventories. We have an average CPO price assumption of RM2,100/tonne for Malaysia in 2019E (2018: RM2,235/tonne). Average CPO price (MPOB physical delivery) was RM1,990/tonne in 8M2019.

Source: AmInvest Research - 11 Sept 2019