• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for May. Palm inventory in Malaysia fell to 1.5mil tonnes as of end May from 1.6mil tonnes as of end April. The palm inventory of 1.5mil tonnes in May was within Bloomberg consensus estimates. The 7.4% MoM decline in palm stockpiles in May was driven by higher exports and weak production. Malaysia’s palm exports climbed by 26.7% MoM to 1.4mil tonnes in May due to Indonesia’s export ban on crude and refined palm products. On the other hand, CPO output was flat at 1.5mil tonnes as there was a break for Hari Raya Puasa festivities in May.

• We believe that Malaysia’s palm inventory would increase in June as production rebounds and buyers shift back to Indonesia. Indonesia resumed its exports of palm products in early June. We think that palm stockpiles could rise to 1.7mil tonnes in June.

• Malaysia’s palm imports declined for the third month in a row. Palm imports slid by 36.9% MoM to 58,985 tonnes in May as Malaysian downstream companies could not buy feedstock from Indonesia. We think that palm imports would increase in June. We reckon that Indonesia would try to export as much as possible as the country’s storage tanks are almost full. Malaysia’s palm imports amounted to 505,108 tonnes in 5M2022 vs. 691,127 tonnes in 5M2021.

• Domestic disappearance of palm oil expanded by 31.0% MoM to 281,828 tonnes in May as economic activities declined during the Hari Raya break. Comparing 5M2022 against 5M2021, domestic disappearance of palm products decreased by 10.4% to 1.3mil tonnes as the Covid outbreak in 1Q affected HORECA activities.

• CPO production in Malaysia edged down by 0.5% YoY to 6.7mil tonnes in 5M2022. CPO output is expected to improve in 2H2022 due to seasonal factors and arrival of foreign workers. 2H usually accounts for 55% to 60% of the full year’s CPO production while 1H makes up the balance 40% to 45%.

• The 26.7% MoM surge in palm exports in May was mainly underpinned by a 19.0% climb in exports to India and 10.7% increase in shipments to China. Going forward, we reckon that Malaysia’s palm exports to India would soften as the country has ample reserves of edible oils. Also, India may switch back to Indonesia for its supply of palm products. India’s inventory of edible oils at the ports and pipelines stood at 2.2mil tonnes as of 1 May vs. 1.9mil tonnes as of 1 April.

• We have an UNDERWEIGHT stance on the plantation sector. We think that CPO prices would ease going forward due to higher production. Currently, we are assuming an average CPO price realised of RM4,500/tonne for the large planters in our coverage.

Source: AmInvest Research - 13 Jun 2022