• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for April 2023. The country’s palm inventory slid for the third month in a row. Palm stocks shrank by 10.5% to 1.5mil tonnes as at end-April from 1.7mil tonnes as at end-March. The inventory of 1.5mil tonnes in April was within Bloomberg consensus estimates. The fall in palm inventory last month can be attributed to a 7.1% fall in production, a 21.5% plunge in imports and a 12.8% increase in domestic consumption. All these compensated for a 27.8% MoM contraction in exports in April.

• Going forward, we reckon that palm inventory will start rising from May onwards as production picks up. Peak production is expected to take place in either October or November. Oil World estimates Malaysia’s CPO production at 19mil tonnes in 2023F vs. 18.5mil tonnes in 2022. The jury is still out on El Nino. As at 26 April, Australia’s Bureau of Meteorology said that there is a 50% chance of El Nino in 2023F. As at 13 April, the Climate Prediction Center in the US predicted a 62% chance of an El Nino from May to July 2023.

• We attribute the 12.8% MoM rise in domestic consumption in April to increase HORECA and transportation activities during the Hari Raya festive period. Comparing 4M2023 against 4M2022, domestic consumption of palm oil climbed by 24.8% to 1.3mil tonnes as economic activities resumed after being hit by a high number of Covid cases last year.

• Palm imports slid by 21.5% MoM to 47,493 tonnes in April in spite of the lower CPO price in Indonesia. Relative to CPO price in Malaysia, we believe that CPO price in Indonesia declined in April due to the higher CPO export tax and levy. Average CPO export tax and levy was about US$197/tonne (RM867/tonne) in April compared to US$169/tonne (RM744/tonne) in March. Comparing 4M2023 against 4M2022 however, Malaysia’s palm imports slumped by 25.2% to 0.3mil tonnes. The CPO price differential between Malaysia and Indonesia was larger in 1Q2022 (between US$375/tonne and US$455/tonne) vs. 1Q2023. Recall that Indonesia banned CPO exports from end-April to end-May 2022.

• Malaysia’s CPO production inched down by 2.8% YoY to 5.1mil tonnes in 4M2023, dragged by poor productivity in April. We reckon that harvesting activities took a breather during the Hari Raya festive period in April. We expect CPO output to rebound in May. In April, CPO production in Sabah slid by 11.3% MoM while in Peninsular Malaysia, CPO output shrank by 8.2%. On the other hand, CPO production in Sarawak edged up by 1.2% MoM to 268,294 tonnes in April.

• We attribute the 27.8% MoM plunge in palm exports in April to lower demand from India and China. India has sufficient reserves of edible oils currently. Inventory of edible oils at the ports and pipelines in India stood at 3.4mil tonnes as at 1 April compared to 1.9mil tonnes a year ago.

• We remain NEUTRAL on the plantation sector. The increase in global palm supply is expected to cap the upside to CPO prices. Our average 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 May 2023