• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for May 2023. Palm inventory in Malaysia rose for the first time in 4 months due to weak demand and a recovery in production. Palm stockpiles increased to 1.7mil tonnes in May from 1.5mil tonnes in April. The inventory of 1.7mil tonnes in May exceeded Bloomberg consensus estimates of 1.6mil tonnes.

• Malaysia’s palm exports were relatively flat MoM at 1.1mil tonnes in May. According to Intertek, Malaysia’s exports to China fell by 17.5% in May while the EU bought 4.7% fewer palm oil. On the other hand, shipments to India rose by 4.5% in May. Comparing 5M2023 against 5M2022, palm exports edged down by 1.3% to 5.9mil tonnes. According to Intertek, Malaysia’s palm shipments plummeted by 38.5% in the first 5 days of June compared to the same period in May. There were zero shipments to China in the first 5 days of June while demand from the EU dived by 67.7%.

• After being affected by Hari Raya festivities in April, Malaysia’s CPO production rebounded by 26.8% MoM to 1.5mil tonnes in May. Malaysia’s CPO production inched down by 1.3% YoY in 5M2023. CPO output climbed by 30.5% MoM to 798,822 tonnes in May in Peninsular Malaysia while in Sabah, CPO production expanded by20.5%. In Sarawak, CPO output surged by 25.9% to 340,543 tonnes. Barring an El Nino, we reckon that FFB production would be healthy in 2H2023. We believe that labour shortage is no longer an issue for the large plantation companies. A few plantation companies have indicated that they have enough estate workers. Also, rainfall has been sufficient so far.

• Palm imports rose by two-fold MoM to 97,079 tonnes in May. Comparing 5M2023 against 5M2022 however, palm imports dropped by 14.7% YoY to 430,671 tonnes. Going forward, we believe that palm imports would be soft due to the narrowing price differential between CPO in Malaysia and Indonesia. Indonesia reduced the CPO export tax to US$33/tonne in the first half of June from US$74/tonne in the second half of May while the CPO export levy was revised downwards to US$85/tonne from US$95/tonne.

• Domestic consumption of palm oil rose by 4% to 346,440 tonnes in May from 333,139 tonnes in April. Comparing 5M2023 against 5M2022, domestic consumption of palm oil climbed by 25.1% to 1.7mil tonnes. Recall that domestic consumption was affected by a high number of Covid cases in early-2022. Going forward, we believe that domestic consumption will pick up due to higher transportation and HORECA activities.

• We are NEUTRAL on the plantation sector. The rise in global supply of palm and soybean oil is expected to cap the upside to CPO prices. Our average 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 Jun 2023