Malaysia’s December CPO production declined by 2% mom to 1.8m MT, mainly attributable to the seasonal monsoon factor. Meanwhile, exports increased marginally by 0.6% mom to 1.38m MT as some key buyers such as China, India and Pakistan bought more of Malaysian palm-oil products. As palm-oil exports in December were below production levels, palm-oil inventories increased further to a new record high of 3.2m MT. However, we expect inventory levels to slowly decline with higher exports and consumption of palm-oil products and believe CPO ASPs could potentially improve to RM2,400-2,500/MT in 2019-20E from RM2,232.50/MT in 2018. Overall, we maintain our NEUTRAL rating on the plantation sector. Our top sector pick is Ta Ann.

Production in December Down 2% Mom to 1.81m MT

Malaysia’s CPO production in December declined by 2% mom and 1.4% yoy to 1.81m MT. Production was lower in Peninsular Malaysia, Sabah and Sarawak, declining by 0.2%, 0.7% and 8.4% mom respectively to 951.6k MT, 512k MT and 344.4k MT. For 2018, total CPO production in Malaysia declined by 2% yoy to 19.5m MT. We expect Malaysia’s CPO production to continue to slow down over the next few months due to the seasonal monsoon period. For 2019, we think CPO production could potentially rebound to c. 20m MT, on the back of improving FFB yields and CPO oil extraction rates (Oil World’s forecast for Malaysia’s CPO production in 2019: 20m MT).

Slightly Higher Exports in December to Some Key Buyers

Palm-oil exports increased slightly in December by 0.6% mom to 1.38m MT, mainly attributable to key buyers such as China, India and Pakistan buying more palm-oil products. Exports to China, India and Pakistan increased by 55.6%, 17.3% and 23.2% mom respectively, to 269k MT, 284.2k MT and 104.3k MT. On the other hand, exports to the EU plunged by 37.3% mom to 93.3k MT. For 2018, Malaysia’s total exports of palm oil dipped marginally by 0.4% yoy to 16.5m MT.

Inventories rise further as palm-oil exports still lower than production

Given that Malaysia’s exports of palm oil in December were still below production levels, inventories continued to build up. Palm-oil inventories in December increased for the seventh consecutive month, rising by 6.9% mom to a new record high of 3.2m MT.

Source: Affin Hwang Research - 11 Jan 2019