• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for June 2023. Palm stockpiles inched up by 1.9% to 1.72mil tonnes in June from 1.69mil tonnes in May. The rise in inventory was mainly due to a 45.5% increase in imports. The inventory of 1.7mil tonnes in June was below Bloomberg consensus estimates of 1.9mil tonnes. We believe that consensus had expected the country’s palm exports to be lower or flat in June. AmSpec reported that Malaysia’s palm shipments edged up by 0.6% MoM in June while Intertek said thatpalm exports fell by 6.9%. In contrast, MPOB reported that the country’s palm exports rose by 8.6%.

• We believe that palm inventory will continue rising as the industry enters the peak production period in 2H2023. We think that palm stockpiles may exceed 2mil tonnes in 2H2023. Barring an El Nino, CPO production is expected to be healthy in 2H2023 as labour shortage has eased. Recall that in 2022, the palm industry in Malaysia suffered a shortage of 70,000 to 80,000 estate workers. Oil World forecasts Malaysia’s CPO production to inch up by 0.3mil tonnes to 18.8mil tonnes in 2023E.

• Malaysia’s CPO production eased by 2.2% YoY to 8.1mil tonnes in 1H2023. After surging by 26.8% MoM in May, CPO production slid by 4.6% to 1.5mil tonnes in June. In Peninsular Malaysia, CPO production contracted by 6.2% to 749,295 tonnes in June from 798,822 tonnes in May while in Sabah, CPO output slid by 5.8% to 356,164 tonnes. However, CPO production in Sarawak edged up by 0.5% to 342,336 tonnes in June.

• Domestic consumption of palm oil rose by 11.5% to 384,904 tonnes in June from 345,076 tonnes in May. Comparing 1H2023 against 1H2022, domestic consumption of palm oil climbed by 25.8% to 2mil tonnes as HORECA activities recovered after being hit by a high number of Covid cases last year.

• On the other hand, palm imports were flat at 0.6mil tonnes in 1H2023 as the price differential between CPO in Malaysia and Indonesia narrowed. On a monthly basis, however, palm imports surged by 45.5% to 0.1mil tonnes in June as the price gap expanded due to higher taxes and levy in Indonesia in April and May. Going forward, we think that Malaysia’s palm imports would decline as Indonesia has reduced the CPO export tax and levy to US$93/tonne in June from US$197/tonne in May.

• We attribute the 8.6% MoM increase in exports in June to higher demand from China and India. According to Intertek, palm shipments to China rose by 20.2% while India bought 33.4% more palm oil from Malaysia. Meanwhile, Malaysia’s palm shipments to the EU declined by 13.2% while Africa’s palm imports contracted by 24.9%. Comparing 1H2023 against 1H2022, Malaysia’s CPO exports edged down by 1.4% to 7.1mil tonnes against a 2.2% decline in CPO production.

• We are NEUTRAL on the plantation sector. We believe that higher supplies of palm and soybean would exert downward pressure on CPO prices. Our average CPO price assumptions are RM3,000/tonne for large planters (including the Indonesia price discount of RM500/tonne to RM1,000/tonne) and RM3,500/tonne for the pure Malaysian companies.

Source: AmInvest Research - 11 Jul 2023