The Malaysian Palm Oil Board (MPOB) has released the monthly palm statistics. Malaysia's palm inventory slid by 2.6% to 1.8mil tonnes in November from 1.9mil tonnes in October. This was within Bloomberg consensus estimates. The monthly decline in palm inventory in November can be attributed to a 9.8% retreat in production and 5.9% rise in domestic consumption. We expect palm stockpiles to remain low until 2Q2025. CPO production is envisaged to be weak due to seasonal and weather factors. We have assumed average CPO prices of RM4,250/tonne for the pure Malaysian planters and RM3,950/tonne for those with Indonesia operations, in 2025F. We affirm Overweight on the plantation sector with Johor Plantation Group (JPG) as our top pick. Our fair value for JPG is RM2.00/share based on a FY26F PE of 18x.

• CPO production shrank by 9.8% MoM to 1.6mil tonnes in November. This was mainly due to seasonal and weather factors. After peaking in 3Q, FFB yields normally soften until 2Q of the following calendar year. This is compounded by the wet weather in 4Q, which affects the harvesting process. CPO output in Peninsular Malaysia slid by 9.6% MoM to 875,818 tonnes in November while in Sabah, CPO production weakened by 9.7% to 392,760 tonnes. In Sarawak, CPO production retraced by 10.4% to 352,716 tonnes. Comparing 11M2024 against 11M2023 however, Malaysia's CPO production expanded by 5% to 17.9mil tonnes on the back of a higher number of estate workers. CPO output rose in every state in 11M2024 except for Sabah, which experienced a 5.2% fall and Sarawak, which registered a 1.2% decline. We attribute Sabah's poor FFB yields to floods and a tree disease.
• Palm exports contracted by 14.7% MoM to 1.5mil tonnes in November. After a healthy 11.1% increase in exports in October, Malaysia's palm shipments shrank in November. Going forward, we believe that India and EU's demand for palm would soften before recovering in 2Q2025. India had ramped up purchases before the hike in import duties in September while the EU had stocked up before the announcement that EUDR would be delayed. According to Intertek, Malaysia's palm shipments to India sank by 42.2% MoM to 258,460 tonnes in November while EU's demand fell by 38.8% to 267,011 tonnes. China's palm imports slipped by 1% MoM to 149,050 tonnes in November.
• CPO price's premium to soybean oil widened to 14.7% or US$145/tonne in November. CPO price traded at a premium to US soybean oil for the third month in a row. The average premiums were 3.1% in September, 8.5% in October and 14.7% in November. Due to supply tightness, we believe that CPO would continue to be more expensive than soybean oil until 2Q2025. Indonesia is expected to implement B40 in January, which would reduce supply of palm oil in the global market. In contrast to the current price premium, the average discount between CPO and US soybean oil was 22.3% in the past five years.

Source: AmInvest Research - 11 Dec 2024