• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for February 2022. Malaysia’s palm stockpiles inched down by 2.1% to 1.52mil tonnes in February from 1.55mil tonnes in January. The 9.3% MoM drop in palm production in February outpaced the 5.2% fall in exports and this had resulted in the fall in palm inventory. In spite of the lower stockpile, the palm inventory of 1.52mil tonnes in February exceeded Bloomberg consensus estimates of 1.35mil tonnes. We attribute this to lower-than-estimated exports and higher-than-expected palm imports. Numbers released by independent cargo surveyors had guided for stronger exports in February.
• Domestic disappearance of palm oil shrank by 4.5% to 236,254 tonnes in February from 247,352 tonnes in January in the absence of the Chinese New Year festivities. Comparing 2M2022 against 2M2021, domestic disappearance of palm oil slid by 26.1% to 483,606 tonnes. On the other hand, palm imports went up by 85.2% MoM to 163,805 tonnes in February. We believe that shipments were locked in ahead of Indonesia’s restrictions on exports in early February. Malaysia’s palm imports amounted to 252,248 tonnes in 2M2022 vs. 304,039 tonnes in 2M2021. Although the price disparity between CPO in Malaysia and Indonesia has widened, we reckon that imports of Indonesia’s palm products into Malaysia will remain muted as Indonesia has restricted 30% of its palm shipments to the domestic market.

• Due to fewer working days, CPO production in Malaysia fell by 9.3% MoM to 1.14mil tonnes in February. However, on a YoY basis, CPO output increased by 2.6% in February. On the back of higher FFB yields, Malaysia recorded a CPO production growth of 7.0% YoY in 2M2022. Average FFB yield in Malaysia was 2.09 tonnes/ha in 2M2022 vs. 2.0 tonnes/ha a year ago. In February, CPO production declined by 18.7% MoM to 277,425 tonnes in Sabah and 1.0% MoM to 633,566 tonnes in Peninsular Malaysia. CPO output shrank by 16.9% to 226,457 tonnes in February from 272,534 tonnes in January in Sarawak.

• Currently, Oil World is expecting Malaysia’s CPO production to increase by 1.0mil to 1.1mil tonnes in 2022F while in Indonesia. CPO output is estimated to rise by 1.7mil to 1.9mil tonnes.

• Malaysia’s palm exports eased by 5.2% MoM to 1.1mil tonnes in February dragged by a 18.3% fall in demand from India and 8.2% slide in shipments to the EU. Comparing 2M2022 against 2M2021 however, Malaysia’s palm exports improved by 22.3% to 2.26mil tonnes. Going forward, India’s palm demand may decline due to high prices. Bloomberg quoted an industry player in India as saying that buyers cancelled as many as 100,000 tonnes of palm productsin late February. India is counting on existing stockpiles and an incoming rapeseed crop to meet demand. India currently has enough cooking oil inventories for 45 days of use.
• We remain UNDERWEIGHT in the plantation sector. We reckon that CPO prices would soften in 2H2022 as palm production picks up on the back of the seasonal factors and arrival of foreign workers. Our average CPO price assumption for 2022F is RM4,000/tonne. We downgrade TSH Resources and Hap Seng Plantations to SELL from HOLD as their share prices have exceeded their fair values.

Source: AmInvest Research - 11 Mar 2022