• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for March 2023. Palm stocks declined for the second month in a row underpinned by strong exports, lower imports and muted production. Malaysia’s palm inventory fell by 21.1% to 1.7mil tonnes in March from 2.1mil tonnes in February. March stockpiles of 1.7mil tonnes were below Bloomberg consensus of 1.8mil tonnes. CPO exports climbed by 31.8% MoM to 1.5mil tonnes in March compared to the soft 2.8% rise in production. We believe that palm inventory would start rising from May onwards in line with the seasonal factor. Also, estate workers are expected to resume operations after the Hari Raya festivities end in April.

• Domestic consumption of palm oil slid by 8.5% MoM to 309,425 tonnes in March. However comparing 1Q2023 against 1Q2022, domestic consumption of palm products surged by 31.1% to 1mil tonnes as economic activities resumed after being hit by a high number of Covid cases last year.

• Palm imports declined by 5.7% to 60,500 tonnes in March from 64,140 tonnes in February. Palm imports amounted to 286,099 tonnes in 1Q2023, 18.9% lower than the 352,693 tonnes in 1Q2022. The YoY decline in palm imports in 1Q2023 can be attributed to Indonesia’s export restrictions, which were imposed to ensure that there is sufficient supply of cooking oil in the country. We expect the restrictions to be lifted in May.

• CPO production grew by 3.2% YoY to 3.9mil tonnes in 1Q2023 as labour shortage eased and lagged effects of 2019 drought dissipated. On a monthly basis, CPO output improved by 2.8% to 1.3mil tonnes in March supported by a higher number of working days. CPO production in Sabah rose by 8.6% MoM to 353,770 tonnes in March while in Sarawak, CPO output expanded by 6.6%. However, CPO production in Peninsular Malaysia edged down by 1.4% to 669,340 tonnes in March from 679,049 tonnes in February. We attribute the fall in production to floods in Johor.

• CPO exports rose by 5.7% YoY to 3.8mil tonnes in 1Q2023 vs. a 3.2% increase in production. On a monthly basis, we believe that the 31.8% growth in CPO exports in March was driven by China, India and the EU. According to Intertek, CPO exports to China jumped by almost 2x while India’s demand climbed by 35%. Palm shipments to the EU expanded by 11% MoM to 358,870 tonnes in March.

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

Source: AmInvest Research - 11 Apr 2023