• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for July 2020. Malaysia’s palm inventory declined by 10.6% to 1.70mil tonnes as at end-July from 1.90mil tonnes as at end-June. The palm stockpiles of 1.70mil tonnes in July were above Bloomberg consensus estimates of 1.66mil tonnes. The monthly decline in palm inventory in July was brought about mainly by a 4.1% fall in palm production and 4.2% climb in exports. The MoM slide in palm production in July came after a 14.2% MoM increase in output in June.
• We believe that Malaysia’s palm stockpiles would start rising from August onwards as palm production recovers. 2H usually accounts for 51% to 55% of the full year’s industry palm production while 1H makes up another 45% to 49%. Industry peak palm production usually takes place in October or November. However, there is a risk that if palm production continues to be weak in August, peak production period may be extended until December.
• Malaysia’s palm production fell by 5.8% YoY to 10.9mil tonnes in 7M2020. Average FFB yield in the country was 7.84 tonnes/ha in 1H2020 vs. 8.44 tonnes/ha in 1H2019. The weakness in FFB yields in 7M2020 can be attributed to the lagged impact of the haze and drought, which took place in 3Q2019. This affected palm production in 1Q2020. Comparing July against June, the monthly 4.1% decline in palm production was dragged mainly by Sabah. Palm production in Sabah slid by 13.9% MoM to 387,257 tonnes in July while in Peninsular Malaysia, palm output shrank by 5.0%. On the other hand, palm production in Sarawak expanded by 10.7% MoM to 391,434 tonnes in July.
• Comparing July against June, Malaysia’s palm exports grew by 4.2% underpinned mainly by an 85.0% increase in shipments to India and 33.7% rise in demand from the EU. On the other hand, China’s imports of Malaysia’s palm products contracted by 17.9% MoM to 288,648 tonnes in July.
• On a yearly basis, Malaysia’s palm exports eased by 11.8% to 9.6mil tonnes in 7M2020 as demand plunged during the Covid-19 movement control order (MCO) period in March and April. Malaysia’s palm exports to India dived by 72.0% YoY in 7M2020. As China and India have eased economic restrictions in 2Q2020, palm demand has returned. India’s imports surged by 347.7% MoM in June and 85.0% MoM in July. China’s demand for Malaysian palm products climbed by 13.3% MoM in May and 55.6% MoM in June. Going forward however, we believe that China’s demand would taper towards the end of the year as the winter season sets in.
• Domestic disappearance of Malaysia’s palm products eased by 0.9% to 2.16mil tonnes in 7M2020 from 2.18mil tonnes in 7M2019. We attribute the marginal decline to a slowdown in biodiesel activities due to Covid-19. Recall that Malaysia’s B20 biodiesel policy is expected to be fully implemented only in June 2021. Comparing July against June, domestic disappearance of palm products slid by 14.2% to 316,469 tonnes.
• We are NEUTRAL on the plantation sector. Our average CPO price assumption is RM2,300/tonne for 2020E. Average MPOB spot price was RM2,482/tonne in 1H2020 compared with RM1,996/tonne in 1H2019.

Source: AmInvest Research - 11 Aug 2020