• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for January 2024. Palm inventory slid for the 3rd month in a row as production fell. Palm inventory stood at 2mil tonnes as at end-January 2024 vs. 2.3mil tonnes as at end-December 2023. The stockpile of 2mil tonnes were within Bloomberg consensus estimates. Due to seasonal factors and floods in some areas, CPO production in Malaysia contracted by 9.6% MoM to 1.4mil tonnes in January. We believe that palm inventory would continue declining until April or May.

• Domestic consumption of palm products climbed by 6.8% MoM and 11% YoY to 369,912 tonnes in January. We attribute this increased transportation and CNY-driven HORECA activities. Palm imports rose by 1.8% MoM to 47,080 tonnes in January as the price of CPO in Indonesia was lower than Malaysia.

• We estimate the price differential between CPO in Malaysia and Indonesia to be at least RM600/tonne currently. We believe that Indonesia’s price discount to Malaysia’s CPO would widen going forward as Indonesia raised the CPO export tax to US$33/tonne (from US$18/tonne) and CPO export levy to US$85/tonne (from US$75/tonne) in the first half of February.

• Comparing January 2024 against January 2023, CPO production improved by 1.6% to 1.4mil tonnes. We attribute this to a higher number of harvesters. Recall that foreign workers started arriving in Malaysia from 3Q2022 to 2Q2023, which took 3 to 6 months to train them. On a monthly basis, the decline in the country’s CPO production in January was led by Peninsular Malaysia, which recorded a 11.3% contraction in output. CPO production in Sarawak shrank by 7.8% MoM to 323,587 tonnes in January while in Sabah, output slid by 7.3% to 341,157 tonnes.

• CPO exports eased by 0.8% MoM but climbed by 18.8% YoY to 1.4mil tonnes in January. We attribute the monthly fall in palm exports in January to poor demand from China and India. We believe that economic activities in China are still weak while India switched from palm oil to soybean oil, which offer cheaper prices. Intertek reported that Malaysia’s palm shipments to China plunged by 47.3% MoM in January while exports to India dived by 41.6%. On a positive note, palm shipments to the EU climbed by 66.6%.

• We are NEUTRAL on the plantation sector. We believe that upside to CPO prices would be capped by higher corn and soybean output 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 Indonesia operations.

Source: AmInvest Research - 14 Feb 2024