Inventory Declines for a Second Month

CPO production continued to improve in February, up by 6.7% yoy to 1.34m MT. Exports were also stronger as key importers such as China, India, Pakistan and the EU bought more of Malaysian palm oil products. The increase in exports contributed to the lower February palm oil inventory of 2.48m MT, down from 2.55m MT in January 2018. 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. Overall, we maintain our NEUTRAL plantation sector rating and our CPO ASP assumption of RM2,600/MT for 2018E.

Malaysia’s February Production Up by 6.7% Yoy to 1.34m MT

Malaysia’s CPO production increased by 6.7% yoy to 1.34m 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 fourth consecutive month, declining by 15.4% mom in February, due to seasonal factors. CPO production in the Peninsular, and Sabah and Sarawak increased by 7.6% and 23.2% yoy, respectively, to 0.71m MT and 0.4m MT, while CPO production in Sarawak dropped by 14.7% yoy to 0.23m MT. Total CPO production in 2M18 was up by 15.5% yoy to 2.93m MT. We expect Malaysia’s CPO production to continue to improve in 2018E (2017: 19.96m MT) and reach above the 20m MT level for the first time (Oil World 2018 CPO production forecast: 20.76m MT).

Higher Exports Lowering Stock Level

Palm oil exports improved in February by 18.5% yoy to 1.31m MT, but on a mom basis, exports declined by 13.3%. Selected key buyers including China, India, Pakistan and the EU bought more of Malaysia’s palm oil products, increasing by 1.7%, 135.1%, 37.8% and 60.5% yoy, respectively, to 105k MT, 313.8k MT, 67.7k MT and 245.8k MT. The increase in palm oil exports has resulted in inventory declining to 2.48m MT. We believe that the suspension of the export tax on palm oil, effective January 2018, by the Malaysian Government has helped stimulate export demand for Malaysian palm oil products and contributed to the decline in the stock level.

Source: Affin Hwang Research - 13 Mar 2018