• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January2023. Palm stockpiles in Malaysia rose by 3.3% to 2.3mil tonnes in January from 2.2mil tonnes in December. This was above Bloomberg estimates of 2.2mil tonnes. The monthly increase in palm inventory in January can be attributed to a 23% decline in exports, which was sharper than the 14.7% fall in production. Malaysia’s palm inventory has been higher than the threshold level of 2mil tonnes since August 2022.
• Going forward, we believe that the country’s stockpiles would continue rising as exports to India easeand production improves. India has abundant reserves of edible oils currently. Inventory of edible oils at the ports and pipelines stood at a record 3.2mil tonnes as at 1 January 2023 vs. 1.7mil tonnes a year ago. At the same time, we believe that CPO production in Malaysia would rise, underpinned by a higher number of estate workers. As at 30 November 2022, 14,159 foreign workers entered the country, mostly from Indonesia and India.
• On a monthly basis, Malaysia’s palm imports surged by more than 2x to 161,459 tonnes in January as oleochemical and refining activities picked up after the holiday season in December. On a YoY basis, Malaysia’s palm imports were 82.6% higher. We attribute this to lower CPO export tax and levy in Indonesia, which spurred shipments from the country. The average CPO export tax in Indonesia was US$63/tonne in January 2023 vs. US$200/tonne in January 2022. Average CPO export levy was US$93/tonne in January 2023 compared with US$175/tonne a year ago.

• CPO production in Malaysia climbed by 10.1% YoY but fell 14.7% MoM to 1.4mil tonnes in January 2023. The YoY increase in CPO output in January was supported by a higher number of estate workers while the MoM decline can be attributed to seasonal factors. On a monthly basis, CPO production in Sabah slid by 12% to 367,394 tonnes in January while in Peninsular Malaysia, CPO output shrank by 15.8%. CPO production in Sarawak slipped by 15.5% MoM to 301,930 tonnes in January. Oil World forecasts CPO production in Malaysia to grow by 0.3mil tonnes to 18.8mil tonnes in 2023F.

• CPO exports fell by 1.9% YoY and 23% MoM to 1.1mil tonnes in January 2023. We attribute the monthly fall in CPO exports to weaker demand from India and EU. According to SGS, Malaysia’s palm shipments to India slumped by 43.2% MoM to 165,000 tonnes in January while EU’s palm imports fell by 12.9%. On a positive note, palm exports to China surged by 60.6% MoM to 268,000 tonnes in January as the country removed Covid restrictions.

• We are NEUTRAL on the plantation sector. We reckon that higher palm supply would restrain any upside to CPO prices. Our CPO price assumptions are RM3,000/tonne for the large planters (includes the Indonesian price discount of RM500/tonne to RM1,000/tonne) and RM3,500/tonne for pure Malaysian companies.

Source: AmInvest Research - 13 Feb 2023