• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for July. Palm inventory in Malaysia rose by 7.7% to 1.8mil tonnes in July from 1.7mil tonnes in June due to higher imports and lower domestic consumption. Palm imports jumped by 120.7% MoM to 148,742 tonnes in July as Indonesia accelerated shipments to destination markets including Malaysia. Malaysia’s palm stockpiles of 1.8mil tonnes in July were within Bloomberg consensus.
• We believe that Malaysia’s palm inventory will continue climbing until production reaches its peak in October or November. We estimate palm stockpiles to be 1.9mil to 2mil tonnes in August. We also opine that Malaysia’s palm imports would increase going forward. Downstream companies in Malaysia are expected to take advantage of Indonesia’s cheaper prices and aggressive selling to acquire raw materials. Indonesia has reduced the CPO export tax to US$52/tonne for the period of 9 to 15 August. Also, the CPO export levy has been removed until 31 August. Comparing 7M2022 against 7M2021, Malaysia’s palm imports slid by 19.5% to 723,987 tonnes as Indonesia banned CPO exports in May.
• Domestic disappearance of palm products slid by 8% to 273,469 tonnes in July from 297,307 tonnes in June. We believe that HORECA activities were weaker in July due to the Hari Raya Haji festivities. Domestic disappearance of palm oil declined by 9.1% to 1.9mil tonnes YoY in 7M2022.

• Malaysia’s CPO production edged down by 0.4% YoY to 9.8mil tonnes in 7M2022 as labour shortage continued to bite. On a monthly basis, CPO output inched up by 1.8% to 1.6mil tonnes in July. CPO output in Sabah shrank by 2.3% MoM to 318,172 tonnes in July while Peninsular Malaysia recorded a 2.3% improvement. CPO output in Sarawak rose by 4.7% to 345,165 tonnes in July from 329,638 tonnes in June. Malaysia and Indonesia have resolved recruitment issues and more workers are expected to arrive in the coming months. It was reported that the palm oil sector in Malaysia is suffering a shortage of more than 100,000 workers. Most plantation companies are experiencing a labour shortage of 15% to 20%.

• The 10.7% MoM increase in Malaysia’s CPO exports in July was underpinned by India, Turkiye and Iran. Palm exports to India surged by 51.2% MoM to 258,819 tonnes in July while shipments to Turkiye climbed by 35.4%. These compensated for a fall in exports to China, the EU and Pakistan. Comparing 7M2022 against 7M2021, China’s palm imports plunged by 31.6% to 621,168 tonnes as Covid-19 lockdowns affected HORECA activities.

• We reiterate UNDERWEIGHT on the plantation sector. We reckon that CPO prices would continue to be weak due to rising supply in Indonesia. Also, sector earnings are expected to be affected by softer selling prices and higher production costs in 2H2022. Our 2022E average CPO price assumption is RM4,500/tonne for the large companies in our coverage.

Source: AmInvest Research - 11 Aug 2022