• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for October. Malaysia’s palm stockpiles rose by 4.4% to 1.83mil tonnes as at end October from 1.76mil tonnes as at end September. Bloomberg consensus had expected the country’s palm inventory to be 1.82mil tonnes in October. The 4.4% MoM increase in palm stockpiles in October was mainly due to a 12.0% fall in exports, which offset a 7.5% decline in palm imports and 3.3% rise in domestic disappearance. Malaysia’s palm exports to India contracted by 16.8% MoM to 310,611 tonnes in October while shipments to the EU plummeted by 21.9%.
• Palm imports slid by 7.5% to 84,799 tonnes in October from 91,636 tonnes in September. Comparing 10M2021 against 10M2020, Malaysia’s palm imports climbed by 59.5% to 1.2mil tonnes. We attribute the increase in palm imports in 10M2021 to the wide disparity of almost RM1,000/tonne between CPO prices in Malaysia and Indonesia. We believe that palm imports would remain high in the coming months as the price differential between Malaysia and Indonesia widens. Indonesia has raised the CPO export tax to US$200/tonne in November on a reference price of US$1,283.38/tonne from US$166/tonne in October. CPO export levy was unchanged at US$175/tonne for November. In comparison in Malaysia, the CPO export tax rate is 8% on a reference price of RM4,523/tonne in November.

• Domestic disappearance of palm oil inched up by 3.3% to 315,069 tonnes in October from 304,945 tonnes in September. We believe that the domestic consumption of palm products would remain healthy in the coming months spurred by HORECA activities during the festive month of December. Malaysia’s domestic disappearance of palm oil edged down by 2.1% YoY to 2.98mil tonnes in 10M2021 due to MCO 3.0 in 2Q and 3Q.

• Malaysia’s CPO production rose by 1.3% MoM to 1.73mil tonnes in October. We believe that this is the peak for the year. We expect CPO production to soften in November and December in line with seasonal output trends. The small production growth in October was led by a 2.7% increase in Sabah and 1.2% rise in Sarawak. In Peninsular Malaysia, CPO output inched up by 0.7% MoM to 915,565 tonnes in October. Comparing 10M2021 against 10M2020, Malaysia’s CPO production fell by 7.9% to 15.0mil tonnes. We think that Malaysia’s CPO production would reach about 18.0mil tonnes in 2021E vs. 19.1mil tonnes in 2020 dragged by a shortage of estate workers and wet weather in 1Q2021.

• As for demand, we believe that Malaysia’s palm exports would remain weak in November and December 2021 as China and India have ample reserves. India’s inventory of edible oils at the ports and pipelines stood at 2.0mil tonnes as at 1 October compared with 1.75mil tonnes as at 1 September. China’s palm imports may soften going forward as the winter season sets in.

• We are NEUTRAL on the plantation sector due to ESG concerns. Nevertheless for investors, who would like exposure to the sector, we recommend Sime Darby Plantation (SDP) (Fair Value: RM4.88/share). We like SDP for its leverage to CPO prices, robust downstream earnings and clean balance sheet.

Source: AmInvest Research - 11 Nov 2021