• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for October 2023. Malaysia’s palm inventory rose by 5.8% to 2.4mil tonnes in October from 2.3mil tonnes in September. The stockpile of 2.4mil tonnes in October was below Bloomberg consensus’ 2.6mil tonnes. Malaysia’s palm inventory increased in October as CPO production expanded by 5.9% and domestic consumption slumped by 16.3%. We believe that palm inventory in Malaysia has peaked in October. From now until March 2024, CPO production is expected to soften in line with seasonal factors.

• Domestic consumption of palm products fell by 16.3% MoM to 398,851 tonnes in October after surging by 83.1% in September. Comparing 10M2023 against 10M2022, however, domestic consumption climbed by 29% to 3.5mil tonnes as Horeca activities recovered after being hit by Covid restrictions last year. Palm imports edged up by 2.6% MoM to 62,803 tonnes in October. On a yearly basis, palm imports fell by 18.2% to 921,606 tonnes in 10M2023 as the price difference between CPO in Malaysia and Indonesia narrowed. The price disparity declined this year as Indonesia reduced its CPO export tax and levy. We estimate the average export tax and levy in Indonesia to be US$141/tonne in 10M2023 vs. US$352/tonne in 10M2022.

• Malaysia’s CPO production was relatively flat at 15.2mil tonnes in 10M2023. After a slow 1H2023, CPO output picked up in 2H2023 on the back of seasonal factors and improved worker productivity. Recall that most of foreign workers arrived in Malaysia from late-2022 to early-2023 and took 3-6 months to train them. The 5.9% MoM increase in CPO production in October was led by a 9.7% rise in Sabah and 6.3% expansion in Peninsular Malaysia. In Sarawak, CPO output rose by only 1.2% in October.

• CPO exports surged by 21% to 1.5mil tonnes in October from 1.2mil tonnes in September. Comparing 10M2023 against 10M2022, CPO exports slid by 3.1% to 12.3mil tonnes. We attribute the monthly increase in exports in October to higher demand from China and EU. According to Intertek, Malaysia’s palm shipments rose by 76.4% to China and 5.2% to EU in October. Palm exports to India were unchanged at 300,000 tonnes in October.

• We are NEUTRAL on the plantation sector. The weak prices of competing vegetable oils such as soybean oil are expected to cap 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 Indonesia operations.

Source: AmInvest Research - 14 Nov 2023