Palm oil inventory declined for the fifth consecutive month (by 4.2% MoM) to 1.68m tonnes in Feb-20, due to lower opening stock and imports, as well as higher domestic disappearance, which altogether more than offset higher output and lower exports. Palm oil stockpile will likely resume on uptrend in Mar-20, on the back of seasonal output recovery and lower exports demand (particularly from China, arising from Covid-19), which more than offset restocking activities ahead of Eid Mubarak. The outbreak of Covid-19 (since end Jan-20) and recent slump in crude oil prices have resulted in CPO spot price declining by ~27% (from RM3,093/tonne in mid-Jan) to RM2,250/tonne (lower than our projected average CPO price assumption of RM2,550/tonne for 2020). We are in the midst of reviewing our projected average CPO price for 2020 -2021, to reassess the impact of Covid-19 outbreak and crude oil price slump on palm oil demand and price. Maintain Overweight for now, pending a review in our projected average CPO price for 2020-2021.

DATA HIGHLIGHTS

Lowest stockpile since Jun-17. Palm oil inventory declined for the fifth consecutive month (by 4.2% MoM) to 1.68m tonnes in Feb-20, due to lower opening stock and imports, as well as higher domestic disappearance, which altogether more than offset higher output and lower exports. The stockpile came in lower than Bloomberg consensus median forecast of 1.76m tonnes.

Output resumed on uptrend for the first time since Sep-19. Overall output increased for the first time since Sep-19, increasing by 10% MoM to 1.29m tonnes in Feb-20, due mainly to a sharp output recovery in Peninsular region (which increased by 25% MoM).

Downtrend in exports continued. Exports remained on a downtrend, declining by 10.8% to 1.08m tonnes in Feb-20, dragged mainly by lower exports to China (-11.3%), India (-54.9%), EU region (-17%), and Pakistan (-72.5%), due mainly to seasonal factor (as palm oil shipment to China typically weakens during winter season) and Covid-19 outbreak (which affected demand from China), and ongoing trade spat with India, we believe.

Palm oil shipment for the first 10 days of Mar-20. Amspec Agri indicated that palm oil exports fell marginally (by 3.5% MoM) to 352k tonnes during the first 10 days of Mar-20.

HLIB’s VIEW

Forecast. Palm oil stockpile will likely resume on uptrend in Mar-20, on the back of seasonal output recovery and lower exports demand (particularly from China, due to arising from coronavirus), which more than offset restocking activities ahead of Eid Mubarak.

The outbreak of Covid-19 (since end Jan-20) and recent slump in crude oil prices have resulted in CPO spot price declining by ~27% (from RM3,093/tonne in mid-Jan) to RM2,250/tonne (lower than our projected average CPO price assumption of RM2,550/tonne for 2020). We are in the midst of reviewing our projected average CPO price for 2020-2021, to reassess the impact of Covid-19 outbreak and crude oil price slump on palm oil demand and price.

Maintain OVERWEIGHT. Maintain Overweight for now, pending a review in our projected average CPO price for 2020-2021.

Source: Hong Leong Investment Bank Research - 11 Mar 2020