• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for the month of October 2019. Palm stockpiles in Malaysia slid by 4.1% to 2.35mil tonnes in October from 2.45mil tonnes in September. The palm inventory of 2.35mil tonnes in October was below consensus estimates of 2.54mil tonnes. Average monthly palm inventory in Malaysia was 2.19mil tonnes in the past two years. The highest level of palm inventory in Malaysia was 3.22mil tonnes, which was recorded in December 2018.
   
• Palm stockpiles shrank by 4.1% MoM to 2.35mil tonnes in October mainly due to a 2.5% fall in output, 16.4% climb in exports and 18.3% jump in domestic disappearance. On a surprising note, CPO production in Malaysia slid by 2.5% MoM to 1.8mil tonnes in October. The highest level of monthly CPO output in Malaysia usually takes place in October. The weak CPO production in October 2019 was attributed mainly to an 8.2% drop in Sarawak and 5.0% fall in Peninsular Malaysia. We think that FFB yields in Sarawak in October were affected by the drought in September.

• Going forward, we think that CPO production in Malaysia may have reached its peak in September. CPO output may ease in the coming months in line with seasonal patterns. In terms of demand, we believe that palm demand may soften going forward as higher CPO prices prompt a shift in demand to other vegetable oils. Also, shipments to India have started sliding partly due to the advisory by the Solvent Extractors Association of India that its members shun Malaysia’s palm products. Malaysia’s palm exports to India dropped by 29.2% MoM to 219,956 tonnes in October while Intertek reported that Malaysia’s palm shipments to India fell by 59% in the first 10 days of November compared with the same period in October.

• Comparing 10M2019 against 10M2018, Malaysia’s CPO production improved by 7.1% YoY to 17.0mil tonnes. Oil World has forecast CPO output in Malaysia to fall to 20mil tonnes in 2020F from 20.5mil tonnes in 2019E. On the other hand, the MPOB has forecast CPO production to rise to 20.5mil tonnes in 2020F from 20mil tonnes in 2019E.
   
• Domestic disappearance of palm oil amounted to 3.16mil tonnes in 10M2019 vs. 2.81mil tonnes in 10M2018. On a monthly basis, domestic disappearance of palm oil rose to 372,763 tonnes in October from 314,995 tonnes in September. Without the domestic disappearance of 372,673 tonnes in October, we believe that Malaysia’s palm stockpiles would have been close to 2.7mil tonnes. The domestic disappearance of 3.16mil tonnes in 10M2019 was about 18.6% of Malaysia’s CPO production of 17.0mil tonnes. We attribute the surge in domestic disappearance of palm oil in 10M2019 to the implementation of the B10 biodiesel policy in Malaysia.
   
• Malaysia’s palm exports improved by 13.1% YoY to 15.65mil tonnes in 10M2019 compared with the 7.1% rise in production. The 13.1% YoY climb in palm exports in 10M2019 was driven by a 107.7% increase in demand from India and 33.5% surge in shipments to China. Comparing October against September however, Malaysia’s palm exports to India fell by 29.2% while shipments to China rose by 23.8%. Apart from China, the 16.4% MoM expansion in exports in October was supported mainly by a 43.9% climb in demand from the EU.

• We have a NEUTRAL recommendation on the plantation sector. For now, our average CPO price assumption is RM2,100/tonne for Malaysia in 2019E (2018: RM2,235/tonne) and RM2,200/tonne in 2020F. Average CPO price (MPOB physical delivery) was RM2,012/tonne in 10M2019.

Source: AmInvest Research - 12 Nov 2019