• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for September 2017. Palm inventory in Malaysia stood at 2.02mil tonnes as at end-September vs. 1.94mil tonnes as at end-August. Consensus was expecting September's palm inventory to be 2.0mil tonnes. As mentioned previously, average monthly palm inventory in Malaysia was 2.02mil tonnes in the past five years.
• Although palm inventory touched the 2mil tonnes level, the underlying numbers were not bearish for CPO prices. This is because palm oil production eased by 1.7% MoM in September while exports rose by 1.8%. Recently, plantation companies indicated that FFB yields in Sabah may not be exciting in 2H2017 due to the last leg impact of El Nino, which took place in 2015. Hence, it appears that the peak palm production in Sabah may take place in November or December this year instead of the usual September or October.
• Domestic disappearance of palm oil amounted to 2.46mil tonnes in 9M2017 compared with 2.1mil tonnes in 9M2016. Domestic disappearance of palm oil rose by 6.4% MoM to 274,877 tonnes in September.
• Imports of palm oil by downstream companies in Malaysia surged by 138.2% from 0.38mil tonnes in 9M2016 to 0.91mil tonnes in 9M2017. On a monthly basis, palm imports eased by 5.5% from 92,615 tonnes in August to 87,558 tonnes in September. Downstream companies have been importing palm products from Indonesia as their feedstock as these are cheaper than Malaysia’s.
• CPO production in Malaysia fell by 1.7% from 1.81mil tonnes in August to 1.78mil tonnes in September. Comparing 9M2017 against 9M2016, CPO output in Malaysia climbed by 12.2%. The MoM decline in palm oil production in September was driven mainly by Sarawak, which recorded a 2.9% contraction. CPO production in Sabah slid by 2.0% from 437,786 tonnes in August to 428,842 tonnes in September while in Peninsular Malaysia, CPO output declined by 1.0%.
• Palm exports improved by 2.3% in 9M2017 vs. 9M2016. Palm exports to China rose by 2.5% YoY in 9M2017 while palm shipments to India were 29.1% lower. Also, Malaysia's palm exports to the Netherlands and Turkey improved by 2.5% and 10.3% YoY in 9M2017 respectively. On a monthly basis, demand for Malaysia's palm products inched up by 1.8% in September. The monthly rise in palm exports was driven by a 41.6% surge in exports to China and 87.7% increase in shipments to Pakistan.
• India was the largest buyer of Malaysia's palm products in 9M2017, accounting for 13.4% exports. China accounted for an additional 11.0% of Malaysia's exports in 9M2017 while the Netherlands was the third largest importer, making up 6.2% of Malaysia's palm exports.
• We are neutral on the outlook for the plantation sector in 2H2017. We reckon that CPO prices would hover at the current levels of RM2,600/tonne to RM2,800/tonne on the back of unexciting production in 2H2017. We have BUYs on Genting Plantations and TSH Resources, with fair values of RM11.50/share and RM1.90/share respectively.

Source: AmInvest Research - 11 Oct 2017