Malaysia’s CPO production declined further in February by 11.1% mom to 1.54m MT, mainly attributable to the seasonal monsoon factor. However, palm-oil exports plunged by 21.4% mom to 1.3m MT as main buyers such as China, Pakistan and the EU bought less of Malaysian palm-oil products. As such, inventories increased slightly in February to 3.05m MT. 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 on higher exports and the consumption of palm oil products. We maintain our NEUTRAL rating on the plantation sector and Ta Ann as our top sector pick.

Production Declined Further in February to 1.54m MT

Malaysia’s CPO production declined for the fourth consecutive month in February, down by 11.1% mom to 1.54m MT, due to the seasonal monsoon factor. CPO production in the Peninsular, Sabah and Sarawak declined by 11.9%, 9.2% and 11.6% mom respectively to 841.3k MT, 427.8k MT and 275.4k MT. We expect Malaysia’s CPO production to recover over the next 1-2 months, after the seasonal monsoon period is over. Total CPO production in 2M19 was up by 12% yoy to 3.3m MT. We expect 2019E CPO production to 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: 20.1m MT).

Weaker Palm-oil Exports to a Few Key Markets

Palm-oil exports in February declined by 21.4% mom to 1.3m MT, mainly attributable to key buyers such as China, Pakistan and the EU buying less of Malaysian palm-oil products. Exports to China, Pakistan and the EU declined by 74.8%, 3.7% and 22.3% mom respectively, to 80.4k MT, 77.7k MT and 189.2k MT. Palm-oil exports to China dropped in February after a strong demand in January, ahead of the Lunar New Year celebration. Meanwhile, exports to India increased by 41% mom to 449k MT, partly due to the cut in import duties on crude and refined palm oil by the Indian Government. For 2M19, total exports were still up by 10.5% yoy to 3m MT.

Inventories Still Hovering at 3m MT

Malaysia’s palm-oil inventories in February increased by c.40k MT mom (or +1.3%) to 3.05m MT (record high was in Dec18 at 3.2m MT). This was due to production levels exceeding exports in February.

Source: Affin Hwang Research - 12 Mar 2019