• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for May 2020. Malaysia’s palm inventory unexpectedly inched down in May. Palm stockpiles in Malaysia edged down by 0.5% to 2.03mil tonnes as at end-May from 2.05mil tonnes as at end-April. The palm inventory of 2.03mil tonnes as at end-May was below
• Bloomberg consensus estimates of 2.22mil tonnes. The MoM decline in Malaysia’s palm inventory in May was due to higher exports. Imports of palm oil also slid MoM in May while domestic disappearance rose.
• We believe that Malaysia’s palm inventory would continue to exceed 2mil tonnes in the coming months underpinned by rising palm production. FFB yields are improving and entering the peak production period in 3Q2020. Average monthly palm inventory in Malaysia was 2.5mil tonnes in the past two years. The highest level of palm stockpiles in Malaysia was 3.22mil tonnes, which was recorded in December 2018. A silver lining is that India has resumed purchases of Malaysia’s palm products and this should limit downside risks to CPO prices.
• Palm production in May of 1.65mil tonnes was flat compared with April as a 13.3% increase in output in Sabah was offset by lower production in Peninsular Malaysia. Estate operations resumed in Sabah in May after operations in some areas were suspended for two weeks in April due to the Covid-19 pandemic. CPO production in Peninsular Malaysia eased by 7.0% MoM to 869,716 tonnes in May after a blistering 18.0% surge in output in April. In Sarawak, CPO output rose by 3.3% MoM to 329,880 tonnes in May.
• Comparing 5M2020 against 5M2019, Malaysia’s CPO production declined by 13.5% to 7.16mil tonnes. FFB yields were affected by the lagged impact of the drought and haze, which took place in 3Q2019. The impact of the weather was exacerbated by the cut in fertiliser application by smallholders. Malaysia’s average FFB yield fell to 4.77 tonnes/ha in 4M2020 from 5.70 tonnes/ha in 4M2019.
• Malaysia’s palm exports rose by 10.7% to 1.37mil tonnes in May from 1.24mil tonnes in April. The monthly increase in exports in May was underpinned by a 217.1% rise in demand from India and 13.3% climb in shipments to China. India’s palm demand improved to 54,961 tonnes in May from 17,333 tonnes in April. India has resumed purchases of palm products due to low stocks at the ports and the upcoming Deepavali festive period. China’s palm demand is expected to be supported by the gradual opening of the HORECA sector (hotels, restaurants and cafes) and MidAutumn festivities. Comparing 5M2020 against 5M2019, Malaysia’s palm exports slid by 23.8% to 6.09mil tonnes as Covid-19 affected demand in 1Q2020.
• Malaysia’s domestic disappearance of palm oil surged by 96.0% MoM to 341,326 tonnes in May. We believe that domestic usage of palm oil picked up in May as biodiesel activities resumed. Going forward, Malaysia has delayed the implementation of the B20 biodiesel policy. Sabah will be implementing B20 on 1 January 2021 vs. August 2020 originally while in Sarawak, B20 has been delayed to 1 September 2020 from April 2020. B20 will only be implemented in Peninsular Malaysia in June 2021. Domestic disappearance of palm oil shrank by 5.3% to 1.47mil tonnes in 5M2020 from 1.55mil tonnes in 5M2019.
• We maintain UNDERWEIGHT on the plantation sector. Our average CPO price assumption is RM2,300/tonne for 2020F. Average MPOB spot prices were RM2,497/tonne in 5M2020 vs. RM2,001/tonne in 5M2019.

Source: AmInvest Research - 11 Jun 2020