• Exports fell to 1.34mn tonnes (-10% MoM, -1% YoY), likely due to weaker demand in the absence of festive seasons and a shift to the relatively cheaper soybean oil.
• We expect the CPO prices to remain at elevated levels through 1QCY25, supported by seasonally lower production and strong demand ahead of festive periods. However, we believe the higher CPO prices are unsustainable in long term and will declined further in 2QCY25 onwards due to: i) seasonal pick-up in edible oil production ii) narrow price gap discount between palm oil and soybean (3-month future), and iii) widening palm oil-gas oil (POGO) spreads, which could slow the phased implementation of biodiesel mandates.
• We reiterate a NEUTRAL call on the sector, with an average target CPO price of RM4,100/MT for 2025.
• We favour upstream pure planters such as Hap Seng Plantations (BUY, TP: RM2.40), and Sarawak Plantation (BUY, TP: RM2.83) due to their better earnings growth and attractive dividend yield.

Production and Inventory Eased

Malaysia’s December palm oil (PO) end-stocks fell for the third consecutive month to 1.71mn tonnes (-7% MoM, -25% YoY), primarily due to lower CPO production of 1.49mn tonnes (-8% MoM, -4% YoY). The decline in December’s production was attributed to lower Fresh Fruit Bunch (FFB) yields (1.34 tonnes/ha: -5.6% MoM, -0.7% YoY) and a lower Oil Extraction Rate (OER) (19.41%: -2.1% MoM, -1.5% YoY), resulting from seasonal low production period, the rainy season and biological tree rest phase.

Exports Slipped in December

December exports decreased to 1.34mn tonnes (-10% MoM, -1% YoY), likely due to tepid demand post-festivities and major importing countries switching to the relatively cheaper soybean oil. However, we remain positive that demand will pick-up back in 1Q25, driven by Muslim festivities (i.e., Ramadhan and Hari Raya Eid Fitri) in February/March 2025. Coupled with seasonally low production, we anticipate that end-stocks will remain below the 2mn tonne level in 1Q25.

Positive 2024 Performance

Malaysia’s 2024 production growth by 4% YoY to 19.34mn tonnes, supported by favourable weather, better manuring and improved productivity from adequate foreign labour. The average CPO prices increased by 10% YoY to RM4,180/MT, which is in-line with our forecast of RM4,100/MT. The higher price was supported by increased demand, with export growth of 12% YoY and lower ending stocks. Additionally, the sentiment of supply constraints and higher demand from Indonesia’s B40 biodiesel mandate implementation in 2025, pushed average CPO prices rising above RM5,000/MT in November and December.

Source: BIMB Securities Research - 13 Jan 2025