• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for January 2023. Malaysia’s palm inventory slid by 6.6% to 2.1mil tonnes in February from 2.3mil tonnes in January. February’s palm stockpiles of 2.1mil tonnes were below Bloomberg consensus estimates of 2.2mil tonnes. Palm inventory fell in February mainly due to a 9.4% fall in production. CPO production shrank to 1.3mil tonnes in February from 1.4mil tonnes in January dragged by floods in Johor and a fewer number of working days.

• We believe that palm inventory would remain low until April due to the fasting and Hari Raya festivities. We reckon that palm stockpiles would start rising from May onwards. Peak CPO production is expected to take place in October or November this year.

• Malaysia’s palm imports declined by 60.3% to 64,140 tonnes in February from 161,459 tonnes in Januaryas Indonesia restrained exports to ensure sufficient supply of cooking oil. The export restrictions are expected to be lifted in May. Malaysia’s domestic consumption of palm products rose by 5% MoM to 349,799 tonnes in February as HORECA activities remained strong even after the Chinese New Year festivities in January. Domestic consumption climbed by 44.4% YoY to 683,039 tonnes in 2M2023. Economic activities resumed in 2M2023 after being affected by a high number of Covid cases last year.

• CPO production improved by 10.1% YoY to 2.6mil tonnes in 2M2023. We attribute the increase to a higher number of workers and dissipating effects of 2019’s haze and drought. On a monthly basis, CPO output slipped by 4.8% to 676,698 tonnes in Peninsular Malaysia and 11.3% to 325,873 tonnes in Sabah. In Sarawak, CPO productionslumped by 17.6% to 248,742 tonnes in February.

• CPO exports edged down by 0.7% YoY to 2.3mil tonnes in 2M2023 compared to the 10.1% expansion in palm production. On a monthly basis, CPO exports eased by 2% to 1.1mil tonnes in February. According to Intertek, Malaysia’s palm shipments to the EU slid by 11% to 324,405 tonnes in February while exports to the Middle East plummeted by 47%. Demand from Africa fell by 15%.

• We are NEUTRAL on the plantation sector as an increase in palm production would cap the upside to CPO prices. Our CPO price assumptions are RM3,000/tonne for the large planters (includes the Indonesia price discount of RM500/tonne to RM1,000/tonne) and RM3,500/tonne for the pure Malaysian companies.

Source: AmInvest Research - 13 Mar 2023