Malaysia’s March CPO production increased by 8.2% mom to 1.67m MT, following the seasonal monsoon season. Palm-oil exports, however, climbed a stronger 22.4% mom to 1.62m MT as key buyers such as China, Pakistan and Turkey bought more of Malaysian palmoil products. We expect demand to remain healthy over the next 1-2 months, ahead of Ramadhan and Hari Raya celebrations. Palm-oil inventories declined in March to 2.92m MT, below the 3m MT level for the first time since Oct18. 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 consumption of palm-oil products. Overall, we maintain our Neutral rating on the plantation sector and Ta Ann as our top sector pick.

March Production Increased by 8.2% Mom to 1.67m MT

Malaysia’s CPO production in Mar19 increased for the first time since Oct18, climbing by 8.2% mom to 1.67m MT, after the seasonal monsoon season. CPO production in Peninsular, Sabah and Sarawak increased by 10.1%, 6% and 5.9% mom to 926.5k MT, 453.7k MT and 291.8k MT respectively. Total Malaysia CPO production for 1Q19 was up by 10% yoy to 4.95m MT, underpinned by improving FFB yields and CPO oil extraction rates. We expect 2019 CPO production to rebound to c.20m MT from 19.5m MT in 2018 (Oil World forecast for Malaysia’s CPO production in 2019: 20.1m MT).

Stronger Palm-oil Exports to China, Pakistan and Turkey

Palm-oil exports in March increased by 22.4% mom to 1.62m MT, mainly attributable to key buyers such as China, Pakistan and Turkey buying more of Malaysian palm-oil products. Exports to China, Pakistan and Turkey increased by >100%, 66.8% and >100% mom respectively, to 171.5k MT, 129.6k MT and 102k MT. The higher palm-oil exports to countries like Pakistan and Turkey in March could potentially be attributable to stocking up ahead of the Ramadhan month, which falls in May19. We expect demand for palm-oil products to remain strong over the next 1-2 months ahead of the Ramadhan and Hari Raya celebrations. For 1Q19, total exports rose 7.9% yoy to 4.6m MT.

Inventory Drops Below 3m MT in March

Malaysia’s palm-oil inventories in March dropped by c.142k MT mom (or -4.6%) to 2.92m MT (record high was in Dec18 at 3.2m MT). The decline in inventory was due to higher exports of palm-oil products and an increase in consumption (likely due to implementation of B10 biodiesel).

Source: Affin Hwang Research - 11 Apr 2019