Malaysia’s CPO production in January declined further by 3.9% mom to 1.74m MT, mainly attributable to the seasonal monsoon factor. Meanwhile, exports surged by 21.2% mom to 1.7m MT as main buyers such as China, India and the EU bought more of Malaysian palm-oil products. Given that palm-oil exports and consumption in January was higher than the production level, stocks declined to 3m MT from the record high of 3.2m MT in the prior month. We think CPO ASPs could potentially improve to RM2,400-2,500/MT in 2019-20E (2018: RM2,232.50/MT), as we expect inventory levels to gradually decline with higher exports and higher consumption of palm oil products. Overall, we maintain our NEUTRAL rating on the plantation sector and Ta Ann as our top sector pick.

January Production Down 3.9% Mom to 1.74m MT

Malaysia’s CPO production in January declined for the third consecutive month by 3.9% mom to 1.74m MT. Production was lower in Sabah and Sarawak, declining by 8% and 9.5% mom respectively to 471k MT and 311.5k MT, while production in Peninsular Malaysia increased slightly by 0.3% mom to 954.9k MT. We expect Malaysia’s CPO production to remain weak over the next 1-2 months, attributable to the seasonal monsoon period, and to pick up once again in 2Q. For 2019E, we think the CPO production could potentially rebound to c.20m MT from 19.5m MT in 2018 (+2.5% yoy), on the back of the improving FFB yield and CPO oil extraction rate (Oil World forecast for Malaysia’s CPO production in 2019: 20m MT).

Increase in Palm-oil Exports to a Few Main Markets

Palm-oil exports in January increased by 21.2% mom to 1.7m MT, mainly attributable to key buyers such as China, India and the EU buying more of Malaysian palm-oil products. Exports to China, India and the EU increased by 17.9%, 12% and 161% mom respectively, to 317.2k MT, 318.3k MT and 243.5k MT. We believe higher palm-oil exports to China was partly due to the Chinese New Year festivities while higher exports to India was partly due to the cut in import duties on crude and refined palm oil by the Indian Government. On the other hand, exports to Pakistan and the Philippines declined by 22.8% and 1% mom respectively to 80.5k MT and 62.2k MT.

Inventories Declined 6.7% Mom to 3m MT

Malaysia’s palm-oil inventories in January declined for the first time since May18, by 6.7% mom to 3m MT, after reaching a record high of 3.2m MT in Dec18. This was due to higher exports and higher consumption of palm oil, which exceeded production levels.

Source: Affin Hwang Research - 12 Feb 2019