• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for March 2021. Palm inventory in Malaysia rose by 10.7% to 1.45mil tonnes as at end-March from 1.31mil tonnes as at end-February. Palm imports and production growth outpaced demand in March. Malaysia’s CPO production climbed by 28.4% MoM to 1.42mil tonnes in March while palm imports surged by 35.7% to 147,341 tonnes. On the other hand, Malaysia’s palm exports expanded by 31.8% MoM to 1.18mil tonnes in March. Bloomberg consensus had expected Malaysia’s palm stockpiles to be 1.33mil tonnes in March 2021.

• After an 8.6% MoM increase in the domestic disappearance or usage of palm oil in February, domestic disappearance fell by 26.6% MoM to 248,663 tonnes in March. Palm imports surged by 35.7% MoM to 147,341 tonnes in March as refining and oleochemical processing activities picked up after the Chinese New Year festivities in February. Comparing 1Q2021 against 1Q2020, palm imports jumped by 52.3% to 451,380 tonnes while domestic disappearance slid by 5.4% to 902,885 tonnes. We expect palm imports to continue rising going forward as the price of CPO in Indonesia is cheaper than Malaysia by almost RM1,000/tonne.

• The 28.4% MoM expansion in palm production in March was largely led by a 31.3% increase in output in Peninsular Malaysia and 30.0% rise in Sabah. Sarawak’s CPO production growth of 19.9% MoM in March was smaller than Sabah and Peninsular Malaysia. We attribute the strong output growth in March to longer working days and a recovery in FFB yields. Comparing 1Q2021 against 1Q2020, Malaysia’s CPO output eased by 5.2% to 3.66mil tonnes. Currently, the MPOB forecasts Malaysia’s CPO production to improve by 2.9% to 19.7mil tonnes in 2021F while Oil World estimates a CPO output of 19.52mil tonnes (2020: 19.14mil tonnes).
   
• Malaysia’s palm exports fell by 13.1% YoY in 1Q2021 compared with a 5.2% YoY decline in production. Palm exports to China plunged by 43.9% YoY to 270,126 tonnes in 1Q2021 while exports to the EU dived by 30.7% to 363,247 tonnes. We expect the EU’s demand to be weak going forward as the region phases out palm biodiesel by year 2030F. On a positive note, India’s demand jumped by 597.1% YoY to 535,466 tonnes in 1Q2021 as shipments recovered after being hit by the Covid-19 shutdown in March 2020.
   
• On a monthly basis, palm exports rose by 31.8% to 1.18mil tonnes in March on the back of a 42.0% increase in shipments to India and 46.1% climb in demand from the EU. We think that the blockage of the Suez Canal in late March would not have a significant impact on Malaysia’s palm shipments to the EU. The Ever Given container vessel was successfully refloated after being stranded for six days.

• We are NEUTRAL on the plantation sector. We reckon that there is more downside at current CPO price levels of more than RM3,500/tonne compared with upside. We also believe that ESG concerns would be a drag on the share price performances of the plantation companies. Our average CPO price assumption is RM3,000/tonne for 2021F vs. RM2,765/tonne recorded in 2020.

Source: AmInvest Research - 13 Apr 2021