• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for March 2022. Palm inventory in Malaysia edged down by 3.0% to 1.47mil tonnes in March from 1.52mil tonnes in February due to a drop in imports and higher domestic disappearance. Bloomberg consensus had expected Malaysia’s palm stockpiles to be 1.49mil tonnes in March. CPO output expanded by 24.1% MoM to 1.41mil tonnes in March while exports rose by 14.1% to 1.27mil tonnes.

• We attribute the strong 24.1% MoM growth in March’s CPO production to a higher number of working days and enhancements in FFB yields. We believe that FFB yields are improving this year after being affected by the lagged effects of 2019 drought last year. Comparing 1Q2022 against 1Q2021, Malaysia’s CPO output rose by 3.9% to 3.8mil tonnes. According to the MPOB, average FFB yield inched up to 3.27 tonnes/ha in 1Q2022 from 3.2 tonnes/ha in 1Q2021. In March, CPO output in Sabah increased by 13.1% MoM to 313,821 tonnes while in Peninsular Malaysia, CPO production climbed by 29.2% to 818,461 tonnes. CPO output in Sarawak went up by 23.2% MoM to 278,933 tonnes in March.

• Domestic disappearance of palm oil surged by 29.4% to 291,764 tonnes in March from 225,535 tonnes in February. We believe that this was due to a pick-up in transportation and HORECA activities in March. However, comparing 1Q2022 against 1Q2021, domestic disappearance of palm oil slid by 14.9% to 764,663 tonnes. On the other hand, palm imports declined by 38.7% to 100,445 tonnes in March from 163,805 tonnes in February. Going forward, we believe that palm imports would increase as Indonesia has scrapped the 30% domestic market obligation. Hence, downstream companies might be buying cheaper palm oil from Indonesia for their refining or oleochemical operations. We believe that CPO price in Indonesia is lower than Malaysia by more than RM1,000/tonne currently. Palm imports amounted to 352,693 Tonnes in 1Q2022 Vs. 451,380 Tonnes in 1Q2021.
• Malaysia’s palm exports rose by 14.1% MoM to 1.27mil tonnes in March after falling by 5.2% in February. Comparing 1Q2022 against 1Q2021, Malaysia’s palm shipments improved by 16.5%. India accounted for 17.9% of Malaysia’s palm exports in 1Q2022 while China accounted for another 8.6%. The EU made up an additional 11.2% of Malaysia’s palm exports in 1Q2022.
• The monthly increase in palm exports in March was largely due to a 63.7% rise in China’s demand and 20.7% expansion in shipments to India. Going forward however, we think that China’s demand may soften, dragged by Covid-19 lockdown measures in Shanghai. China’s palm demand is usually the strongest in 3Q of the calendar year due to Mid-Autumn festivities.

• We remain UNDERWEIGHT in the plantation sector on the expectation that CPO prices would ease on rising palm production and imports. CPO output is expected to increase in 2H2022 on the back of the arrival of foreign workers and seasonal factors.

Source: AmInvest Research - 12 Apr 2022