• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for November 2023. Malaysia’s palm inventory inched down by 1.1% to 2.42mil tonnes in November from 2.45mil tonnes in October. This was below Bloomberg consensus of 2.5mil tonnes. The small decline in palm stocks in November can be attributed to lower production and higher domestic consumption. This compensated for a 5.7% slide in palm exports. Going forward, stockpiles are expected to continue easing on the back of weaker palm production.

• Domestic consumption of palm products rose by 22.2% MoM to 471,795 tonnes in November. We reckon that domestic consumption will continue increasing in the coming months supported by Christmas and Chinese New Year festivities. Domestic consumption amounted to 4mil tonnes in 11M2023, which was 29.3% YoY higher. Domestic consumption rebounded this year after being affected by Covid restrictions last year.

• Palm imports slid by 15.6% to 53,006 tonnes in November from 62,803 tonnes in October. Comparing 11M2023 against 11M2022, palm imports decreased by 18.6% to 974,612 tonnes as the price differential between CPO in Malaysia and Indonesia declined. Going forward, however, we believe that palm imports will rise as Indonesia has raised CPO export tax and levy. The CPO export tax was US$33/tonne in 1H of December vs. US$18/tonne in November while the CPO export levy was US$85/tonne compared to US$75/tonne.

• CPO production in Malaysia was flat at 17mil tonnes in 11M2023. We think that CPO output in Malaysia would be 18.7mil tonnes in 2023E compared to 18.5mil tonnes in 2022. Oil World forecasts Malaysia’s CPO production at 18.4mil tonnes and Indonesia’s CPO output to be flat in 2024F. On the other hand, GAPKI (Indonesia Palm Oil Association) expects the country’s CPO production to grow by 5% to 55.8mil tonnes in 2024F.

• The 7.7% MoM decline in CPO production in Malaysia in November can be attributed to a 9.7% fall in Sarawak and 7.4% contraction in Peninsular Malaysia. In Sabah, CPO output slid by 6.4% to 429,419 tonnes in November from 458,707 tonnes in October.

• Malaysia’s CPO exports eased by 3.6% YoY to 13.8mil tonnes in 11M2023. On a monthly basis, CPO exports retraced by 5.7% to 1.4mil tonnes in November. According to Intertek, Malaysia’s palm shipments to China fell by 15% while India’s demand was flat. On a positive note, Malaysia’s palm exports to EU surged by 30.6% in November.

• We are NEUTRAL on the plantation sector. Although palm production is expected to ease due to seasonal factors, we think that CPO prices would be capped by weak prices of soybean oil and corn. Our average CPO price assumptions for 2024F are RM4,000/tonne for pure Malaysian planters and RM3,700/tonne for those with Indonesia operations.

Source: AmInvest Research - 13 Dec 2023