• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January 2018. Contrary to market expectations, palm inventory in Malaysia shrank by 6.8% from 2.73mil tonnes as at end-December 2017 to 2.55mil tonnes as atJanuary 2018. Consensus was expecting Malaysia's palm stockpiles to remain unchanged at 2.73mil tonnes in January. The MoM decline in palm inventory in January 2018 was largely led by a 13.5% drop in production, 21.4% increase in domestic disappearance and 6% improvement in exports.
• The palm inventory of 2.55mil tonnes in January 2018 was 12.4% below the record level of 2.91mil tonnes, which was registered in November 2015. Average palm inventory in Malaysia was 1.87mil tonnes in 2017. Going forward, we think that the abolishment of the CPO export tax in Malaysia would boost exports and prevent inventory from exceeding three million tonnes.
• Palm imports climbed by 68.2% MoM but fell 24.2% YoY to 69,650 tonnes in January 2018. We expect palm imports to remain high as downstream companies purchase cheaper feedstock from Indonesia. As mentioned in previous reports, CPO in Indonesia is cheaper by RM200/tonne to RM300/tonne compared with Malaysia due to logistics and export levy issues.

• Domestic disappearance of palm oil increased by 57.6% YoY to 327,470 tonnes in January 2018. On a quarterly basis, domestic disappearance rose by 21.4%. Although we do not know the reason for the domestic disappearance, we think that it would remain high. Without the domestic disappearance, palm inventory in Malaysia would have reached three million tonnes last year. The domestic disappearance of 327,470 tonnes in January 2018 was about 20.6% of the month's CPO production of 1.59mil tonnes. Recall that the implementation of the B10 biodiesel policy in Malaysia has been delayed due to insufficient subsidies and poor feedback from the automobile industry.
• CPO production in Malaysia went up by 24.3% YoY from 1.28mil tonnes in January 2017 to 1.59mil tonnes in January 2018. FFB yields in Malaysia continued to recover after being hit by El Nino in 2016. However comparing January 2018 against December 2017, CPO output in Malaysia slid by 13.5% as oil palm trees entered the low productivity period. In Sabah, CPO production eased by 7.3% MoM to 454,173 tonnes in January 2018 while in Sarawak, CPO output decreased by 11.9%. CPO production in Peninsular Malaysia fell by 17.1% MoM to 825,485 tonnes in January 2018. Oil World has forecast CPO production to improve by 3.4% to 20.6mil tonnes in Malaysia and 5.5% to 38.3mil tonnes in Indonesia in 2018F.
• Malaysia's palm exports expanded by 17.6% YoY from 1.29mil tonnes in January 2017 to 1.51mil tonnes in January 2018. The improvement in exports was driven by India, which imported 44.6% more palm oil. Also, palm exports to Pakistan surged by 112.9% YoY in January 2018. The increase in demand from India and Pakistan helped compensate for a 6.3% YoY fall in exports to China in January 2018.
• We are NEUTRAL on the outlook for the plantation sector in 1H2018. Our average CPO price assumption is RM2,650/tonne for 2018F vs. RM2,792/tonne achieved in 2017. We have a BUY on Genting Plantations with a fair value of RM11.50/share.

Source: AmInvest Research - 13 Feb 2018