• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for March 2020. After falling MoM in the past five months, palm inventory in Malaysia rose for the first time. Due to the two-week shutdown in plantation operations in Sabah, we think that Malaysia’s palm inventory would decline in April before rebounding in May.
• Palm stockpiles in Malaysia inched up by 1.7% to 1.73mil tonnes as at end-March from 1.68mil tonnes at endFebruary. We believe that Malaysia’s palm inventory in March would have been higher if palm oil operations in Sabah were allowed to operate in the last week of the month. The 1.7% MoM rise in palm stockpiles in March was due to an 8.4% climb in palm production and a 19.8% drop in domestic disappearance. Consensus had expected Malaysia’s palm inventory to be 1.65mil tonnes as at end-March 2020.

• In spite of the one-week shutdown in plantation operations in Sabah, industry CPO production improved by8.4% MoM to 1.4mil tonnes in March due to enhancements in FFB yields. FFB yield in Sarawak edged up to 1.05 tonnes/ha in March from 0.97 tonnes/ha in February while in Peninsular Malaysia, FFB yield rose to 1.32 tonnes/ha from 1.15 tonnes/ha. In Sabah, FFB yield inched up to 1.21 tonnes/ha in March from 1.16 tonnes/ha in February in spite of the one-week suspension in estate activities.

• Comparing 1Q2020 against 1Q2019 however, Malaysia’s CPO production dived by 22.1% YoYto 3.86mil tonnes due to lower FFB yield. Average FFB yield was 3.37 tonnes/ha in 1Q2020 vs. 4.28 tonnes/ha in 1Q2019. Industry experts are forecasting Malaysia’s CPO production to be 20mil to 20.5mil tonnes in 2020F (2019: 19.9mil tonnes).

• The 9.2% MoM improvement in palm exports in March 2020 can be attributed to higher demand from the EU and Pakistan. Pakistan’s imports of Malaysia’s palm products climbed by 43.0% MoM to 67,064 tonnes in March. Malaysia’s palm exports to the EU rose by 28.7% to 195,377 tonnes in March from 151,810 tonnes in February. On a negative note, India’s palm imports continued to be weak as reflected in the shipment of 10,806 tonnes in March 2020 against 341,540 tonnes in March 2019, and 21,130 tonnes in February 2020. Exports to China fell by 5.6% MoM to 148,017 tonnes in March. Comparing 1Q2020 against 1Q2019, Malaysia’s palm exports slid by 24.7% to 3.48mil tonnes.

• Domestic disappearance of palm oil plunged by 19.8% MoM to 281,170 tonnes in March 2020 as economic activities declined during the movement control order. We believe that biodiesel production took a breather in March even though fuel is among the government’s list of essential operations. Domestic disappearance amounted to 958,377 tonnes in 1Q2020 vs. 982,718 tonnes in 1Q2019.

• Malaysia’s palm imports rose by 5.1% MoM to 93,603 tonnes in March 2020. However comparing 1Q2020 against 1Q2019, Malaysia’s palm imports (mainly from Indonesia) dropped by 16.6% to 296,375 tonnes as CPO price in Indonesia is currently higher than Malaysia’s. We believe that refining and oleochemical operations continued to operate in Peninsular Malaysia and Sarawak during the MCO as they are essential business activities.

• We maintain UNDERWEIGHT on the plantation sector. Our average CPO price assumptionisRM2,300/tonne for 2020F. Average MPOB spot prices were RM2,703/tonne in 1Q2020 vs. RM2,014/tonne in 1Q2019. Average MPOB monthly spot price fell by 12.2% to RM2,382/tonne in March from RM2,715/tonne in February.

Source: AmInvest Research - 13 Apr 2020