The Malaysian Palm Oil Board (MPOB) has released the palm statistics for December 2024. For the third month in a row, Malaysia's palm inventory declined dragged by lower production. Palm stockpiles stood at 1.7mil tonnes in December vs. 1.8mil tonnes in November. This was below Bloomberg consensus of 1.8mil tonnes. We expect CPO production to recover in 2Q2025 i.e. after the Hari Raya festivities. Hari Raya Puasa will take place on 31 March this year. Recently, CPO prices fell due to news that Indonesia may delay the implementation of B40. The country has since announced that B40 will be fully implemented in 1.5 months' time. We maintain Overweight on the plantation sector with KL Kepong and Johor Plantations Group (JPG) as our top picks. Our target prices are RM26.55/share for KLK and RM2.00/share for JPG. Our 2025F average CPO price assumptions are RM4,250/tonne for the pure Malaysian planters and RM3,950/tonne for those with Indonesia operations.
- CPO production continued to fall in December. CPO output slid by 8.3% MoM to 1.5mil tonnes in December as floods affected harvesting. CPO production in Sabah retreated by 10.4% to 351,861 tonnes while in Peninsular Malaysia, CPO output shrank to 784,955 tonnes from 875,818 tonnes in November. In Sarawak, CPO production retraced by 0.8% to 349,970 tonnes. Comparing 2024 against 2023, Malaysia's CPO output grew by 4.2% to 18.6mil tonnes on the back of a higher number of estate workers. All states in Malaysia recorded higher CPO production in 2024 except for Sabah and Sarawak. CPO production in Sabah fell by 5.2% due to floods and a tree disease. In Sarawak, CPO output eased by 1.1% in 2024. Oil World forecasts Malaysia's CPO production to rise by 4% to 19.3mil tonnes in 2025F. Indonesia's CPO output is envisage to inch up to 49mil tonnes in 2025F from 48.2mil tonnes in 2024.
- Palm exports dipped by 10% MoM to 1.3mil tonnes in December. According to Intertek, Malaysia's palm shipments to India dived by 18% to 211,840 tonnes but exports to the EU expanded by 9.7% to 292,875 tonnes. Palm shipments to China slipped by 2.4% MoM to 145,540 tonnes. On a yearly basis, Malaysia's CPO exports improved by 11.6% to 16.9mil tonnes vs. the 4.2% increase in production.
- CPO price's premium to US soybean oil widened to 26.6% or US$241/tonne in December. For the fourth month in a row, CPO was more expensive than soybean oil. Average premiums were 3.1% in September, 8.5% in October and 14.7% in November. We believe that CPO would continue to trade at a premium to US soybean oil due to supply tightness in 1Q2025. Compared 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 - 13 Jan 2025