• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for November. Malaysia’s palm inventory inched down to 2.3mil tonnes in November from 2.4mil tonnes in October. This was below Bloomberg estimates of 2.4mil tonnes. The MoM decline in palm stockpiles in November was mainly due to lower imports and production. The country’s CPO output peaked in October. We believe that the palm industry has entered the low production season, which would last until February.

• Malaysia’s palm imports slid 16.4% MoM to 70,962 tonnes in November in spite of the larger price differential between CPO in Malaysia and Indonesia. We think that palm imports dropped in November due to weaker refining and oleochemical activities in Malaysia. The reinstatement of the CPO export levy and increase in the export tax in the second half of November resulted in Indonesia’s CPO becoming cheaper than Malaysia. In the first half of December, Indonesia’s CPO export tax and levy were unchanged. Comparing 11M2022 against 11M2021, Malaysia’s palm imports fell by 8.6% to 1.2mil tonnes due to Indonesia’s export ban in May.

• Domestic consumption of palm oil improved to 353,794 tonnes in November from 303,345 tonnes in October on the back of increased HORECA activities. We believe that domestic consumption would continue to be healthy in December as the holiday season spurs consumption and transportation activities. On a yearly basis however, domestic consumption of palm products eased by 5.8% to 3.1mil tonnes in 11M2022 as the surge in Covid cases in 1Q affected HORECA activities.

• Malaysia’s CPO production was flat YoY in 11M2022. We believe that the country’s CPO production would be unchanged at 18.1mil tonnes in 2022E. We expect CPO output to improve in 2023F on the back of a higher number of foreign workers. Oil World forecasts Malaysia’s CPO production to increase by 0.3mil tonnes in 2023F.

• On a monthly basis, CPO output in Peninsular Malaysia fell by 10% to 878,542 tonnes in November while in Sabah, CPO production edged down by 2.1%. CPO production in Sarawak shrank by 6.6% to 374,859 tonnes in November from 401,186 tonnes in October.

• CPO exports stagnated MoM at 1.5mil tonnes in November. According to SGS, India’s palm imports surged by 113% MoM in November. We attribute this to the attractive price discount between CPO andUS soybean oil. We estimate the price discount to be a record 46% in November compared to the 5-year average of 19%. On the other hand, China’s palm imports slid by 23% in November. China’s palm demand is usually weak during the winter season. Comparing 11M2022 against 11M2021, Malaysia’s CPO exports were flat at 14.3mil tonnes.

• We are NEUTRAL on the plantation sector. We believe that CPO prices would be capped by the increase in supply in Malaysia and Indonesia in 2023F. Our CPO price assumptions are RM3,000/tonne for the large planters and RM3,500/tonne for the pure Malaysian companies.

Source: AmInvest Research - 14 Dec 2022