CPO production in January improved yoy after the lagged El Nino phenomenon effect. Exports were also stronger as key importers such as the EU, India, Pakistan and Turkey bought more palm oil products. Given the higher exports coupled with higher domestic consumption, the palm oil inventory in January declined to 2.55m MT from 2.73m MT in December 2017. We believe that the suspension of the export tax on palm oil by the Malaysian Government has managed to help stimulate export demand for Malaysian palm oil products and contributed to the decline in the stock level. We maintain our NEUTRAL plantation sector rating and CPO ASP assumption of RM2,600/MT for 2018E.

January Production Up by 24.3% Yoy to 1.59m MT

Malaysian CPO production in January 2018 was higher by 24.3% yoy to 1.59m MT due to an improvement after the lagged effect of the El Nino phenomenon that badly affected production in 2016. However, on a mom basis, production was down for a third straight month, declining by 13.5% mom, due to seasonal factors. CPO production in the Peninsular, Sabah and Sarawak increased by 30.3%, 30.7% and 3.9% yoy, respectively, to 0.83m MT, 0.45m MT and 0.31m MT. We expect Malaysia’s CPO production to improve in 2018E (2017 CPO production: 19.96m MT) to above the 20m MT level for the first time (Oil World 2018 CPO production forecast: 20.7m MT).

Lower Palm Oil Inventory on Higher Exports and Consumption

Palm oil exports improved in January by 6% mom and 17.5% yoy to 1.51m MT, as selected key buyers bought more of Malaysia’s palm oil products. Exports to the EU, India, Pakistan and Turkey increased by 35.8%, 44.6%, 112.9% and 37.8% yoy, respectively, to 187.2k MT, 201.5k MT, 101.3k MT and 90.2k MT. The increase in palm oil exports together with higher domestic consumption resulted in the palm oil inventory declining by 6.7% mom to 2.55m MT. We believe the suspension of the export tax on palm oil, effective 8 January 2018, by the Malaysian government for a 3-month period has helped stimulate export demand for Malaysian palm oil products and contributed to the decline in the stock level.

CPO ASP Up 3.3% Mom to RM2,486.50/MT

Average MPOB locally-delivered CPO prices in January increased RM79.50/MT mom to RM2,486.50/MT, up by 3.3% (Jan17 CPO ASP: RM3,268/MT). The recovery in the prices was partly attributable to the increase in export demand, seasonal decline in production volume as well as a prospective decline in world palm oil stocks during Jan-Mar.

Source: Affin Hwang Research - 13 Feb 2018