• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for December 2023. Palm inventory in Malaysia eased by 4.6% to 2.3mil tonnes as of end-December 2023 (end-December 2022: 2.2mil tonnes) from 2.4mil tonnes as of end-November. December’s palm stocks of 2.3mil tonnes were below Bloomberg consensus estimates of 2.4mil tonnes. The monthly fall in palm inventory in December can be attributed to a 13.3% drop in production, which offset a 5.1% contraction in exports.
   
• Domestic consumption of palm products surged by 29.3% to 4.4mil tonnes in 2023 from 3.4mil tonnes in 2022. Recall that domestic consumption was hit by a high number of Covid cases in early-2022. On a monthly basis, domestic consumption slid by 22% to 374,056 tonnes in December as HORECA activities took a breather and Malaysians travelled overseas during the holiday break.
   
• Palm imports fell by 18.6% to 1mil tonnes in 2023 from 1.3mil tonnes in 2022. Downstream companies in Malaysia imported fewer palm products from Indonesia as the price differential narrowed between Malaysia and Indonesia. The price disparity declined as the Indonesian government reduced the CPO export tax and levy. Average CPO export tax and levy amounted to US$134/tonne in 2023 compared to US$313/tonne in 2022.
   
• Malaysia’s CPO production was relatively flat at 18.6mil tonnes in 2023 vs. 18.5mil tonnes in 2022. Although foreign workers arrived in the country from late-2022 to mid-2023, it took 3 to 6 months to train them. The monthly drop in CPO production in December can be attributed to seasonal factors. We believe that palm production would continue to be soft until April 2024. CPO output in Sabah retraced by 14.3% MoM to 368,091 tonnes in December while in Peninsular Malaysia, CPO production declined by 13.3%. CPO output in Sarawak shrank by 12.3% MoM to 351,106 tonnes in December.
   
• Going forward, we think that CPO production in Malaysia would improve by 3% to 5% in 2024F due to a higher number of harvesters. In Indonesia, GAPKI (Indonesia Palm Oil Association) anticipates the country’s CPO production to grow by 5% to 55.8mil tonnes this year.
   
• Malaysia’s CPO exports retreated by 4.1% to 15.1mil tonnes in 2023. On a monthly basis, CPO exports retraced by 5.1% to 1.3mil tonnes in December. According to Intertek, Malaysia’s palm shipments to China slid by 12.6% while exports to the EU plunged by 48.1%. On the other hand, shipments to India rose by 39% MoM to 416,090 tonnes in December.
   
• We are NEUTRAL on the plantation sector. We believe that CPO prices would be restrained by higher soybean production in South America. Our average CPO price assumptions for 2024F are RM4,000/tonne for pure Malaysian planters and RM3,700/tonne for those with Indonesian operations.

Source: AmInvest Research - 11 Jan 2024