• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for July 2018. Palm inventory in Malaysia rose for the second time in July. Palm inventory in Malaysia inched up by 1.3% from 2.19mil tonnes as at endJune to 2.21mil tonnes as at end-July. Consensus was expecting palm inventory to be 2.42mil tonnes as at end-July. Palm stockpiles in Malaysia were lower than estimated due to a 39.6% drop in imports in July. We think that imports of palm products by downstream companies in Malaysia fell in July as palm supply has begun to pick up in Malaysia. In addition, the export tax of 5% on CPO has narrowed the price differential between CPO in Malaysia and Indonesia.
• As mentioned in previous reports, Malaysia’s palm inventory is expected to increase going forward in line with the peak production period in 3Q and 4Q2018. There is a possibility that the highest level of output would be achieved in 4Q2018 instead of the usual September or October. We think that there is a delay in palm productivity as FFB yields in Sabah were weak in July. According to industry players, FFB production in Sabah was unexciting YoY from May to July 2018 due to tree stress and estate workers returning home for the Hari Raya holidays.
• After falling by 12.6% MoM in June, CPO production in Malaysia rebounded by 12.8% MoM to 1.5mil tonnes in July. CPO output in Sabah climbed by 5.5% in July while in Sarawak, CPO production climbed by a strong 13.9%. CPO production in Peninsular Malaysia surged by 15.9% from 682,549 tonnes in June to 791,104 tonnes in July. Comparing July 2018 against July 2017 however, CPO output in Malaysia shrank by 17.7%. CPO production in Sabah fell by 22.6% from 462,153 tonnes in July 2017 to 357,514 tonnes in July 2018.
• Malaysia’s palm exports improved by 6.8% MoM to 1.21mil tonnes in July driven by the Netherlands and the EU. Comparing 7M2018 against 7M2017, Malaysia’s palm exports rose by 3.5%. On a monthly basis, China’s imports of Malaysia’s palm oil slid by 28.2% in July while India’s demand eased by 17.7%. Going forward, we expect China and India’s demand for Malaysia’s palm products to soften as the winter season sets in China. In addition, China and India have ample inventories of edible oils. As at 27 July 2018, palm inventory at the major ports in China stood at 567,700 tonnes vs, 354,000 tonnes a year ago. As at 1 June 2018, inventory of edible oils in India stood at 2.66mil tonnes vs. 2.28mil tonnes a year ago.
• India was the largest buyer of Malaysia’s palm oil in 7M2018. India accounted for 16.1% of Malaysia’s palm exports in 7M2018. This was followed by China (10.4%) and Pakistan (7.5%). Malaysia’s palm exports to China expanded by 10.8% YoY in 7M2018 while India’s imports of Malaysia’s palm products climbed by 18.9%.
• We maintain our NEUTRAL stance on the plantation sector in 2H2018. We have assumed an average CPO price assumption of RM2,450/tonne for 2018F (7M2018: RM2,394/tonne) compared with the price of RM2,792/tonne achieved in 2017. We believe that the 2Q2018 financial results of plantation companies would be unexciting in August dragged by lower CPO prices and production. According to the MPOB, average CPO price was RM2,380/tonne in 2Q2018 vs. RM2,467/tonne in 1Q2018 while CPO output was 1.9% QoQ lower in 2Q2018.

Source: AmInvest Research - 13 Aug 2018