• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for November 2020. After falling by 8.6% MoM to 1.57mil tonnes as at end-October, Malaysia’s palm inventory inched down by 0.6% MoM to 1.56mil tonnes as at end-November. The palm inventory of 1.56mil tonnes as at end-November was marginally above Bloomberg consensus estimates of 1.55mil tonnes. Although Malaysia’s CPO production fell by 13.5% MoM to 1.49mil tonnes in November, this was offset by a 22.2% fall in exports and a 164.9% rise in imports. Palm imports jumped to 149,498 tonnes in November from 56,433 tonnes in October.
• We believe that downstream companies in Malaysia would be importing more palm oil from Indonesia. CPO prices in Indonesia are expected to be a lot cheaper than Malaysia’s going forward. Due to the hike in CPO export tax and levy in Indonesia in December 2020, the price difference between CPO in Malaysia and Indonesia could widen to as much as US$200/tonne (RM814/tonne) in the coming months.
• Still, we think that Malaysia’s palm inventory would end the year below 2.0mil tonnes. However in January 2021, we reckon that Malaysia’s CPO production would pick up YoY as FFB yields recover from the drought and haze. To recap, industry CPO output plummeted by 32.6% YoY in January 2020 due to the lagged effects of the haze and drought in 3Q2019. For now, industry experts are expecting CPO output in Malaysia to be flat in 2021F. CPO production in Malaysia is likely to be 19.3mil to 19.4mil tonnes in 2020E (2019: 19.9mil tonnes).
• Comparing 11M2020 against 11M2019, CPO production in Malaysia slid by 3.9% YoY to 17.8mil tonnes. Most of the plantation companies in our coverage are expected to record a 4% to 8% drop in their FFB production in 2020E. On a monthly basis, CPO output in Malaysia slid by 13.5% to 1.49mil tonnes in November. In Sabah, CPO production declined by 13.8% MoM to 383,168 tonnes in November while in Sarawak, CPO output shrank by 10.7% to 330,431 tonnes. CPO production in Peninsular Malaysia contracted by 14.5% MoM to 777,952 tonnes in November.
• FFB yields in Malaysia declined in 11M2020 due to the reduction in fertiliser application by smallholders and effects of 3Q2019’s haze and drought. Average FFB yield in Malaysia was 15.52 tonnes/ha in 11M2020 vs. 15.97 tonnes/ha in 11M2019. The sharpest drop in FFB yield in 11M2020 was recorded by Sabah. FFB yield in Sabah fell by 4.2% YoY to 15.59 tonnes/ha in 11M2020. In Peninsular Malaysia, FFB yield eased to 16.50 tonnes/ha in 11M2020 from 16.83 tonnes/ha in 11M2019. FFB yield in Sarawak shrank to 13.89 tonnes/ha in 11M2020 from 14.35 tonnes/ha in 11M2019
• Malaysia’s CPO exports declined by 7.6% YoY to 15.8mil tonnes in 11M2020. This was largely due to a 49.0% fall in palm demand from India and 7.0% decline in shipments to the EU. On a MoM basis, CPO exports dived by 22.1% to 1.3mil tonnes in November. The monthly decline in CPO exports in November can be attributed to a 51.9% slide in India’s demand and 95.5% plunge in US imports.
• We are NEUTRAL on the plantation sector. Our average CPO price assumption is RM2,500/tonne for 2021F. We believe that CPO production in Indonesia would recover in 2021F. Also, we reckon that the recent surge in soybean prices has already priced in weaker output in Brazil and the USA.

Source: AmInvest Research - 11 Dec 2020