The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for September. Palm inventory in Malaysia rose by 11% to 2.3mil tonnes as of end September from 2.1mil tonnes as at end-August. The MoM increase in stockpiles in September was due to higher production and carry-over inventory. September inventoryof 2.3mil tonnes was within Bloomberg consensus.
We believe that palm inventory in Malaysia would increase to 2.5mil to 2.6mil tonnes in October, driven by a rise in production and weaker exports. Palm oil output is envisaged to be the highest in October or November while exports may soften after a robust 9% MoM expansion in September. In contrast to Malaysia, Indonesia’s palm inventory is expected to decline. GAPKI (Indonesia Palm Oil Association) has said that the country’s palm stockpiles may be slightly lower than 5mil tonnes by year-end compared with the peak of 7.2mil tonnes in May.
Malaysia’s palm imports edged down by 1.5% to 157,832 tonnes in September from 160,206 tonnes in August. Palm imports declined by 6% to 1mil tonnes in 9M2022 from 1.1mil tonnes in 9M2021. Going forward, we believe that downstream companies in Malaysia would reduce purchases of palm products from Indonesiaas the price differential between Malaysia and Indonesia has narrowed. Indonesia’s CPO export tax is expected to be US$33/tonne in the first 15 days of October compared to an average of US$88/tonne in September. The CPO export levyhas been waived until year-end.
CPO production in Malaysia was flat at 13.3mil tonnes in 9M2022 as labour shortage continued to affect harvesting. On a monthly basis, CPO output inched up 3% to 1.8mil tonnes in September from 1.7mil tonnes in August. MoM, CPO production in Sabah increased by 8% to 407,977 tonnes in September while CPO output in Peninsular Malaysia rose by 1%. CPO production in Sarawak improved by 2% to 404,157 tonnes in September from 395,721 tonnes in August. Peninsular Malaysia made up 54% of CPO production in September while Sabah and Sarawak accounted for the balance 23% each.
CPO exports grew by 9% MoM to 1.4mil tonnes in September, underpinned by higher demand from China. Palm exports to China doubled to 264,089 tonnes in September. On the other hand, India’s palm imports slid by21%MoM to 185,061 tonnes in September. Going forward, we believe that India’s demand would continue softening as the country has ample reserves. Inventory of edible oils at the ports and pipelines in India stood at 2.4mil tonnes as at 1 September compared with 1.8mil tonnes a year ago. China’s palm demand may also ease as the winter season sets in.
We maintain UNDERWEIGHT on the plantation sector. We think that CPO prices would continue to be weak dragged by higher inventory in Malaysia. Global economic uncertainties could also affect demand for palm products. Our realised CPO price assumptions are RM4,500/tonne for 2022E and RM3,000/tonne for 2023F. We are reviewing our fair values and recommendations for KL Kepong and Genting Plantations.
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