• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for June 2021. Palm stockpiles in Malaysia rose by 2.8% to 1.61mil tonnes as at end-June from 1.57mil tonnes as at end-May mainly due to a 29.4% drop in domestic disappearance and 2.2% increase in palm production. According to Bloomberg, consensus hadexpected Malaysia’s palm inventory to be 1.65mil tonnes as at end-June.

• Domestic disappearance of palm oil in Malaysia slid by 29.4% MoM to 279,594 tonnes in June after a 96.1% surge in May. We believe that the two-week EMCO in Selangor would affect domestic consumption of palm oil in July. Dine-in at restaurants is not allowed while only factories involved in the production of bread, cooking oil, sugar and flour are allowed to operate. Also, the implementation of the B20 biodiesel policy in Peninsular Malaysia has been postponed to the end of 2022F. Domestic disappearance of palm oil eased by 3.6% to 1.78mil tonnes in 1H2021 from 1.84mil tonnes in 1H2020.

• Malaysia’s palm imports climbed by 17.1% MoM to 136,478 tonnes in June. Palm imports jumped by 72.8% to 828,405 tonnes in 1H2021 from 479,487 tonnes in 1H2020. We reckon that palm imports would continue rising in July as Indonesia has reduced the CPO export levy. The lower export levy would make it easier for Indonesian companies to sell crude palm oil to Malaysian downstream companies. We believe that the price difference between CPO in Malaysia and Indonesia would still be attractive at about RM1,000/tonne even after the reduction in the CPO export tax and levy.

• CPO output in Malaysia inched up by 2.2% MoM to 1.61mil tonnes in June in the absence of festive holidays. Recall that Hari Raya Aidilfitri took place in May. CPO production in Sabah rose by 3.5% MoM to 399,186 tonnes in June while in Peninsular Malaysia, CPO output expanded by 2.7% to 879,578 tonnes. On the other hand, CPO production in Sarawak edged down by 0.5% MoM to 327,423 tonnes in June. Going forward, we anticipate palm production to increase further as the industry enters the peak output period. Although there is a shortage of foreign workers in Malaysia, we reckon that CPO production in 2H2021 would still be higher than 1H2021. Oil World estimates Malaysia’s 2021E CPO production to be 500,000 tonnes lower than 2020’s 19.14mil tonnes. In contrast, the MPOB forecasts Malaysia’s CPO output to be 19.7mil tonnes in 2021E vs. 19.14mil tonnes in 2020.

• Malaysia’s palm exports expanded by 11.8% MoM to 1.42mil tonnes in June due to higher demand from China. Comparing 1H2021 against 1H2020 however, Malaysia’s palm exports fell by 9.3% to 7.07mil tonnes. China’s palm imports from Malaysia declined by 41.3% YoY to 739,041 tonnes in 1H2021 while exports to the EU slid by 25.2%. On a positive note, Malaysia’s palm exports to India surged by 303.0% YoY to 1.58mil tonnes in 1H2021 as demand in 1H2020 was affected by Covid-19 lockdown measures. Going forward, we expect India’s palm demand to remain positive as the country has reduced the base import duty on CPO for three months (from 30 June to 30 September 2021). Total import duty on CPO in India is 30.25% currently vs. 38.5% each for soybean oil and sunflower oil.

• We are NEUTRAL on the plantation sector. We believe that CPO prices would soften as industry production rises in 2H2021. We have assumed an average CPO price realised of RM3,000/tonne for the plantation companies in our coverage. This is lower than the year-to-date average spot price of RM3,650/tonne due to forward sales at weaker prices and the Indonesia price discount.

Source: AmInvest Research - 13 Jul 2021