• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January 2020. Palm stockpiles in Malaysia eased by 12.7% to 1.76mil tonnes as at end-January from 2.01mil tonnes as at end-December 2019. The MoM decline in palm inventory in January was mainly due to a 12.6% drop in palm production, which offset a 13.2% fall in exports. Consensus was expecting Malaysia’s palm inventory to be 1.78mil tonnes as at end-January 2020.
• Comparing January 2020 against January 2019, Malaysia’s CPO production slid by 32.9% to 1.17mil tonnes as FFB yields were affected by the haze and drought in 3Q2019. Against December 2019, Malaysia’s CPO output slipped by 12.6%. From September 2019 to January 2020, Malaysia’s CPO production fell by 36.7%. We expect CPO production in Malaysia to continue easing in February as it is a shorter working month. In line with historical trends and a higher number of working days, Malaysia’s CPO production is expected to pick up from March onwards.

• CPO output in Sabah shrank by 14.9% MoM to 316,939 tonnes in January while CPO production in Peninsular Malaysia dropped by 11.8%. In Sarawak, CPO output declined by 11.5% MoM to 288,131 tonnes in January. Sabah accounted for 27.2% of Malaysia’s CPO production in January 2020 while Peninsular Malaysia accounted for another 48.1%. Sarawak made up the balance 24.7% of Malaysia’s CPO output in January 2020. Malaysia’s CPO production is estimated to be 20mil to 20.5mil tonnes in 2020F compared with 19.9mil tonnes in 2019.

• Domestic disappearance of palm oil was 321,105 tonnes in January 2020 vs. 364,905 tonnes in January 2019 and 350,476 tonnes in December 2019. We think that domestic disappearance of palm oil would remain high in Malaysia in 2020F due to the B10 biodiesel policy. Malaysia is expected to implement the B20 biodiesel policy in stages in 2020F. B20 is expected to absorb about 1.26mil tonnes of palm oil from the system annually. B20 would be introduced in Langkawi in 1Q2020, Labuan in April, Sarawak in July and then Sabah and the rest of Malaysia.

• Malaysia’s palm imports rose by 17.3% to 113,717 tonnes in January 2020 from 96,950 tonnes a year ago. Going forward, we believe that palm imports from Indonesia would fall as CPO price in Indonesia is now higher than Malaysia. This is because India has switched to Indonesia for its supply for crude palm oil. We estimate that Indonesia’s CPO is RM73/tonne more expensive than Malaysia currently.

• Malaysia’s palm exports slid by 27.8% YoY and 13.2% MoM to 1.21mil tonnes in January 2020. Palm exports to India plunged by 85.3% to 46,876 tonnes in January 2020 from 318,342 tonnes in January 2019 as buyers switched to Indonesia. Palm shipments to China dived by 44.7% YoY to 176,771 tonnes in January 2020. On a positive note, Malaysia’s palm exports to Pakistan rose by 111.8% YoY to 170,802 tonnes in January 2020.

• Following the downgrade in our recommendation for Kuala Lumpur Kepong, our stance on the plantation sector is now an UNDERWEIGHT. Our average CPO price assumption is RM2,300/tonne for 2020F vs. RM2,119/tonne (MPOB spot physical delivery) in 2019. CPO price is 0.2% higher than the price of US soybean oil presently. In the past five years, the average monthly price discount between CPO and soybean oil was 19.3%.

Source: AmInvest Research - 11 Feb 2020