Malaysia’s palm oil inventories fell more than expected, touching their lowest in a year, led by the biggest monthly exports increase since Sept. The tighter inventory level was positive for the CPO prices. At the point of writing, CPO futures rallied RM82/mt to RM6,003/mt. We maintain Overweight on the plantation sector with a full-year CPO price forecast of RM4,300/mt. Our top picks are Sarawak Plantation and Ta Ann.

• Palm oil inventories drop more than expected. Comparing to market estimates of 1.49 m mt, palm oil inventories fell 3% MoM to 1.47m mt in March. Stock-to-usage ratio slipped from 9.6% to 8%, as exports and domestic demand grew.

• Exports rebounds. Palm oil exports advanced 14% MoM to 1.26m mt, snapping three straight months of decline, driven by all major consuming countries, namely, China (64%), EU (48.3%), India (20.8%), Pakistan (58.8%) and US (+46%). One notable bright spot was the strong exports to EU, with palm oil demand rising to fill the absence of sunflower and rapeseed oils, in which conflicting countries Russia and Ukraine account for nearly 75% of the global exports. The ongoing Russia-Ukraine conflict had led to the closure of some sunflower crushing plants and ports in Ukraine, disrupting productions and exports of sunflower oil and meal.

• Output recovers from low-production season. After seeing a four straight months of decline, palm oil production jumped 24.1% MoM to 1.4m mt on the back of production recovery seen in East Malaysia (+17.6%) and Peninsular Malaysia (+29.2%).

• Wider soybean oil-palm oil price gap. Soybean oil’s premium to palm oil price has expanded from USD96/mt to the current level of USD203/mt, the steepest in eight months as softer soybean production in South America has pushed the soybean prices dramatically in recent months. The wider gap will make the palm oil more attractive for the price sensitive buyers like India and Pakistan ahead of the Ramadan celebration.

Source: PublicInvest Research - 12 Apr 2022