• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for December 2019. Palm stockpiles in Malaysia slid by 11.0% to 2.01mil tonnes as at end-December 2019 from 2.26mil tonnes as at endNovember. The MoM decline in palm inventory in December 2019 was mainly due to a 13.3% drop in palm production. Consensus had expected Malaysia’s palm stockpiles to be 2.07mil tonnes as at end-December 2019.
• Malaysia’s palm production contracted by 13.3% MoM to 1.33mil tonnes in December as FFB yields declined. We think that this was due to floods, which affected states like Johor. Malaysia recorded a CPO production of 19.9mil tonnes in 2019 compared with 19.52mil tonnes in 2018. The country’s CPO output of 19.9mil tonnes for 2019 was below Oil World’s estimate of 20.5mil tonnes but within the MPOB’s forecast of 20mil tonnes. Oil World has forecast Malaysia’s CPO production to be 20mil tonnes in 2020F. CPO output in Indonesia is estimated to be 45.4mil tonnes in 2020F against 44.1mil tonnes in 2019E.

• CPO production in Sabah fell by 12.3% to 372,590 tonnes in December from 424,848 tonnes in November while in Peninsular Malaysia, CPO output shrank by 16.1% to 635,812 tonnes. CPO production in Sarawak slid by 8.5% to 325,502 tonnes in December from 355,625 tonnes in November.

• Malaysia’s palm exports eased by 0.7% MoM to 1.4mil tonnes in December 2019. Higher exports to Egypt, Turkey and Singapore helped compensate for the drop in exports to China and India. Palm exports to China fell by 24.6% MoM to 256,614 tonnes in December while shipments to India contracted by 2.8%. Comparing 2019 against 2018, Malaysia’s palm exports climbed by 12.0% to 18.47mil tonnes underpinned mainly by a 75.4% surge in demand from India and a 33.9% increase in shipments to China. India was the largest buyer of Malaysia’s palm products, accounting for 23.9% of exports in 2019. This was followed by China (13.5%), Pakistan (5.9%), the Netherlands (4.8%) and Turkey (3.8%).

• Domestic disappearance of palm oil rose by 9.8% to 3.8mil tonnes in 2019 from 3.5mil tonnes in 2018. We attribute the increase in the domestic disappearance of palm oil to the implementation of the B10 biodiesel policy in the transportation sector in the beginning of 2019 and B7 biodiesel policy in the industrial sector in July 2019.

• Malaysia is expected to implement B20 biodiesel in the transportation sector in stages in year 2020F. B20 would be introduced in Langkawi in 1Q2020, Labuan in April, Sarawak in July and then Sabah. B20 is estimated to absorb about 1.26mil tonnes of palm oil from the system annually. Compared to B10, B20 would take up an additional 500,000 tonnes of palm oil or 2.4% of the country’s CPO production.

• We have a NEUTRAL recommendation on the plantation sector. Our average CPO price assumption is RM2,300/tonne for 2020F vs. RM2,119/tonne (MPOB spot physical delivery) recorded in 2019. We believe that physical demand for palm products would decline as buyers switch to other vegetable oils. CPO is currently more expensive than soybean oil. CPO price is at a small premium of 0.3% to soybean oil price.

Source: AmInvest Research - 13 Jan 2020