• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for December 2022. Palm inventory in Malaysia slid for the second month in a row due to weak production. Malaysia’s stockpiles of palm products eased by 4.1% to 2.2mil tonnes as at end-December from 2.3mil tonnes as at end-November. The inventory of 2.2mil tonnes in December was within Bloomberg consensus.

• Malaysia’s palm imports declined by 20% MoM to 57,000 tonnes in December. Comparing 2022 against 2021, palm imports fell by 13% to 1.3mil tonnes as Indonesia banned exports of crude and refined palm oil in May. Due to the ban, Malaysian downstream companies did not import palm products from Indonesia. Indonesia’s reinstatement of the CPO export levy and increase in export tax also restrained the country’s exports in 4Q2022.

• Domestic consumption of palm oil fell by 14% MoM to 301,095 tonnes in December. Domestic consumptionslid by7% to 3.4mil tonnes in 2022 from 3.7mil tonnes in 2021. Domestic consumption of palm oil was weak in 2022 as the surge in Covid cases in 1Q affected demand from the HORECA segment.

• CPO production in Malaysia inched up to 18.5mil tonnes in 2022 from 18.1mil tonnes in 2021. CPO output was unexciting in 2022 due to insufficient harvesters. It is estimated that the palm industry in Malaysia is short of 70,000 to 80,000 workers. We believe that the situation will improve in 2023F as foreign workers have been arriving. Oil World forecasts Malaysia’s CPO production to improve by 0.3mil tonnes in 2023F from 18.5mil tonnes in 2022.
• On a monthly basis, CPO output shrank by 3.7% to 1.6mil tonnes in December due to seasonal factors. CPO production in Peninsular Malaysia slipped by 3.9% MoM to 844,170 tonnes in December while in Sabah, CPO output eased by 2.4%. CPO production in Sarawak slid by 4.7% MoM to 357,365 tonnes in December.
• CPO exports inched up to 15.7mil tonnes in 2022 from 15.6mil tonnes in 2021. We believe that the improvement in exports was underpinned by higher demand from India. This helped compensate for a plunge in demand from China. China was affected by Covid-19 lockdowns in 2022. On a monthly basis, CPO exports edged down by 3.5% to 1.5mil tonnes in December. According to SGS, palm exports to India contracted by 18.2% while shipments to China plunged by 36.7%.

• We are NEUTRAL on the plantation sector. We believe that CPO prices would be restrained by higher production in supply from Malaysia and Indonesia in 2023F. Our CPO price assumptions are RM3,000/tonne (includes Indonesia price discount of RM500/tonne to RM1,000/tonne) for the large planters and RM3,500/tonne for the pure Malaysian companies. Average MPOB spot price was RM5,126/tonne in 2022.

Source: AmInvest Research - 11 Jan 2023