• Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for October 2015. Palm oil inventory rose by 7.3% from 2.64mil tonnes in September to 2.83mil tonnes in October. This was above consensus estimates of 2.72mil tonnes. The record inventory level of 2.83mil tonnes in October was driven mainly by higher palm oil production. The MoM growth of 4% in CPO production in Malaysia outpaced the 1.9% increase in exports in October.
• We reckon that Malaysia’s CPO production would start weakening from November onwards in line with the seasonally lower output period. Unfavourable weather conditions are also expected to affect oil yields. Currently, east Peninsular Malaysia is facing monsoon rains.
• In addition, an industry player in Indonesia has mentioned that oil extraction rates may be hit by the lagged impact of the haze, which has disrupted the photosynthesis process. Also, Indofood Agri Resources said that under the worst case scenario, its FFB yields may fall by 30% YoY in 1HFY16 due to the haze. Indonesian Palm Oil Association said that Indonesia’s CPO production may contract by 5% to 10% in 2016F from an estimated 33mil tonnes in 2015.
• Domestic disappearance of palm oil rose by 3.1% from 129,198 tonnes in September to 133,139 tonnes in October. Domestic disappearance of palm oil amounted to 1.66mil tonnes in 10M2015 versus 2.13mil tonnes in 10M2014. As stated in a previous report, we think that the implementation of B10 in Malaysia has been delayed due to negative feedback from the automobile companies.
• Average CPO price recovered by 11.4% from RM1,986/tonne in September to RM2,212/tonne in October. Year-todate, average CPO price was RM2,199/tonne, which is in line with expectations. Average price discount between CPO and soybean oil narrowed from 26.0% or US$189/tonne in September to 21.3% or US$158/tonne in October.
• The 4.0% MoM expansion in CPO production in October was mainly driven by a 11.3% climb in output in Sabah. Palm oil production in Sarawak improved by 5.8% MoM to 420,859 tonnes in October while Peninsular Malaysia recorded a 0.5% decline in CPO output. CPO production in Malaysia amounted to 16.9mil tonnes in 10M2015 versus 16.6mil tonnes in 10M2014. We reckon that the country’s CPO output would be able to meet industry forecasts of 19.8mil tonnes to 20mil tonnes for the full year.
• The 1.9% MoM increase in palm oil exports in October was led by India, which recorded a 23.5% expansion in demand. In spite of the hike in import duties in September 2015 in India, the tax differential between crude and refined palm oil remains unchanged at 7.5-percentage points. Hence, we think that India’s demand for palm oil would remain robust underpinned by a shortfall in domestic production and positive macro factors such as population growth.
• China’s imports of Malaysian palm oil fell by 13% MoM to 167,470 tonnes in October. This is not surprising as the country’s palm oil demand is usually weak during the winter season. On a YoY basis, China’s demand for palm oil shrank by 5.2% in 10M2015 compared with a steep 23.3% decline in 2014. Overall, Malaysia’s palm oil exports grew by 1.2% from 14.27mil tonnes in 10M2014 to 14.45mil tonnes in 10M2015.

Source: AmeSecurities Research - 12 Nov 2015