• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for the month of September 2019. Palm stockpiles in Malaysia rose for the first time in six months. Palm inventory in Malaysia increased by 9.3% to 2.45mil tonnes in September from 2.25mil tonnes in August. The palm stockpiles of 2.45mil tonnes were within consensus estimates. The highest level of palm inventory in Malaysia was 3.22mil tonnes, which was recorded in December 2018.
   
• The MoM rise in Malaysia’s palm inventory in September can be attributed to an 18.8% fall in exports and 30% climb in imports. On a surprising note, CPO production only inched up by 1.2% MoM to 1.8mil tonnes in September. Still, we think that CPO output would continue to go up in the coming months as 2H is the peak production period for Malaysia and Indonesia. As mentioned in previous reports, we believe that Malaysia’s CPO production would reach the highest level either in October or November. Comparing 9M2019 against 9M2018, Malaysia’s CPO output grew by 9.3% to 15.19mil tonnes. Looking ahead to 2020F, Oil World has forecast Malaysia’s CPO production to be slightly lower than the 20.5mil tonnes estimated for 2019E.

• CPO production was weak in September due to a 4.2% MoM drop in Peninsular Malaysia. This partly offset the 9.6% increase in production in Sabah and 5.3% expansion in output in Sarawak. We think that CPO production in Peninsular Malaysia was affected by the drought and haze in September.

• The 18.8% MoM fall in exports in September was not surprising as shipments had surged in August. We believe that Indian buyers increased their purchases of palm products in August before the India government raised the import duty on Malaysia’s refined palm products by 5 percentage points in September. India’s imports of Malaysia’s palm products plunged by 43.6% MoM in September while China’s demand eased by 25.0%. On a positive note, Pakistan’s palm imports rose by 10.2% MoM in September. Comparing 9M2019 against 9M2018, Malaysia’s palm exports surged by 14.3% to 14.0mil tonnes.

• Domestic disappearance of palm oil increased to 315,329 tonnes in September from 284,633 tonnes in August. Domestic disappearance of palm oil amounted to a whopping 2.79mil tonnes in 9M2019 vs. 2.47mil tonnes in 9M2018. The domestic disappearance of 2.79mil tonnes was about 18.4% of Malaysia’s CPO production of 15.19mil tonnes in 9M2019. We continue to attribute the domestic disappearance of palm oil in Malaysia to the implementation of the B7 biodiesel policy in the industrial sector, which took effect from 1 July.

• Palm imports rose by 30.0% to 90,590 tonnes in September from 69,705 tonnes in August. Downstream companies in Malaysia have been buying crude palm products from Indonesia as the price is cheaper by RM200 to RM300/tonne. Comparing 9M2019 against 9M2018, Malaysia’s palm imports climbed to 837,135 tonnes from 625,453 tonnes.

• We are NEUTRAL on the plantation sector as CPO prices are expected to be pressured by the rise in palm inventories. Our average CPO price assumption is RM2,100/tonne for Malaysia in 2019E (2018: RM2,235/tonne). Average CPO price (MPOB physical delivery) was RM2,002/tonne in 9M2019.

Source: AmInvest Research - 11 Oct 2019