Marginal inventory increased in October despite PO export growing momentum. Malaysia's palm oil end-stocks continued it growth momentum in October, surpassing the crucial 2.0mn tonnes mark to reach 2.45mn tonnes, amid a +5.8% MoM and +1.6% YoY increase, marking the highest end-stocks recorded in 2023. The rise was primarily driven by heightened production, reaching 1.94mn tonnes (+5.9% MoM; +6.8% YoY), although exports kept pace with output growth at 1.47mn tonnes (+21% MoM, -2% YoY) with domestic consumption and imports falling MoM to 0.38mn tonnes (-17% MoM, +37% YoY) and 0.05mn tonnes (-3% MoM, -28% YoY) respectively. The encouraging export performance is likely due to rising demand from major importing countries as restocking activities intensified ahead of festivities such as Deepavali and New Year. Overall, higher inventory was attributed to an increase in stocks for both Crude Palm Oil (CPO) and Processed Palm Oil (PPO) stocks, which climbed by +1.9% MoM and +11.6% MoM respectively to 1.396mn tonnes and 1.052mn tonnes during this period.
Looking ahead, we anticipate stock levels to remain elevated but at a slower pace, ending the year in the region of 2.15mn to 2.2mn tonnes. This expectation is underpinned by two factors, namely: 1) a slowdown in PO production as the seasonal productive period is about to end, and 2) sluggish demand that typically follows post-festivities due to the completion and normalization of replenishment activities. These factors are further compounded by heightened competition from Indonesia and other edible oils, particularly Soybean Oil (SBO), rapeseed oil, and sunflower oil.
CPO price is expected to stay supported, although the discount between the PO price and SBO price is narrowing, nearing its 5-year average of USD288/MT. Despite the narrowing discount of PO price against SBO price, which moderated further to USD 224/MT from USD 407/MT recorded in September 10, 2023, we maintain our view that the price (MPOB-local delivery) is likely to hover around RM 400/MT, either above or below RM 3,800/MT in the near term. This projection is based on several factors, namely: 1) the discount of PO price compared to SBO price remains attractive, despite narrowing, 2) a weaker Ringgit, 3) an increase in the biofuel mandate, 4) slower growth in palm oil supply from Malaysia due to reduced yields caused by Covid-19-related challenges, including low productivity from new workers and insufficient fertilizer application, along with the aging of palm oil estates (MPOA estimates 664,000ha or about 12% of the nation’s planted area consists of trees aged 25 years and above while over 33% of the planted area could be classified as old by 2027), and 5) the severity of El-Nino climate phenomenon, a worry for many climate experts, is predicted to significantly affect global agriculture, including the production of palm oil.
Maintain a NEUTRAL call on plantation sector with average CPO price forecast of RM3,790/MT-RM3,600/MT for 2023-2024; given that most companies under our coverage, this year, may face with heightened risk of challenging earnings on the back of lower palm products price (vis-à-vis of last year) and higher operating costs. We have a BUY call on IOI (TP: RM4.50), and a HOLD call for KLK (TP: RM24.05), SIME Darby Plants (TP: RM4.60), GENP (TP: RM5.87), Sarawak Plant (TP: RM2.06), and TSH (TP: RM1.01); whilst a SELL on SOP (TP: RM2.05), FGV (TP: RM1.23), Boustead Plants (TP: RM0.65) and HAPL (TP: RM1.70), though a non-rated for TH Plant.
Source: BIMB Securities Research - 10 Oct 2023
Chart | Stock Name | Last | Change | Volume |
---|
2024-08-24
KLK2024-08-24
TSH2024-08-23
KLK2024-08-23
KLK2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SOP2024-08-23
THPLANT2024-08-23
TSH2024-08-23
TSH2024-08-23
TSH2024-08-23
TSH2024-08-22
KLK2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-21
SDG2024-08-20
FGV2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-19
FGV2024-08-19
FGV2024-08-19
KLK2024-08-16
KLK2024-08-15
GENP2024-08-15
KLK2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-14
FGV2024-08-14
FGV2024-08-14
FGV2024-08-14
FGV2024-08-14
KLK2024-08-14
KLK2024-08-14
KLK2024-08-14
TSH2024-08-13
FGV2024-08-13
IOICORP2024-08-13
KLK2024-08-13
SDG2024-08-13
SDG2024-08-13
SDG2024-08-13
SDGCreated by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024