• On a positive note, we think that Malaysia’s palm inventory is close to peaking. We believe that palm production would reach its highest level in October before softening in November and December. We estimate Malaysia’s inventory at 2.5mil tonnes in October based on a 5% increase in palm production and 7% rise in exports.

• Palm imports shrank by 46.3% MoM to 61,183 tonnes in September. We attribute the drop in palm imports from Indonesia to weak demand for downstream products in Malaysia. CPO export tax and levy in Indonesia amounted to US$118/tonne (RM552/tonne) in September, which was the same as August. Comparing 9M2023 against 9M2022, Malaysia’s palm imports slid by 17.6% to 0.9mil tonnes as the price differential between CPO in Malaysia and Indonesia declined.

• Domestic consumption of palm products surged by 83.1% MoM to 0.5mil tonnes in September. On a yearly basis, domestic consumption jumped by 29.4% to 3.2mil tonnes in 9M2023. This was due to a rebound in HORECA activities after being affected by Covid last year.

• CPO output was flat YoY at 13.3mil tonnes in 9M2023. On a monthly basis, the 4.3% expansion in production in September was led mainly by Sabah. CPO output in Sabah increased by 8.3% to 418,052 tonnes in September while in Peninsular Malaysia, CPO production rose by 3.3% to 973,740 tonnes. In Sarawak, CPO production improved by3.1% to 437,642 tonnes in September from 424,454 tonnes in August.

• Comparing 9M2023 against 9M2022, palm exports edged down by 3.4% to 10.9mil tonnes. On a monthly basis, we attribute the fall in exports in September to weak demand from EU and India. According to Intertek, palm shipments to EU slid by 15.8% MoM to 324,702 tonnes in September while India’s demand slid by 2.4%. On the flip side, China’s purchases of Malaysian palm oil rose by 24.2% to 107,795 tonnes in September after sinking by 25.8% in the previous month.

• We are NEUTRAL on the plantation sector. Falling prices of competing vegetable oils such as soybean oil are expected to restrain upside to CPO prices. Our average CPO price assumptions for 2023E are RM3,800/tonne for pure Malaysian planters and RM3,500/tonne for those with Indonesian operations.

Source: AmInvest Research - 11 Oct 2023