Malaysia’s June19 CPO production declined by 9.2% mom to 1.52m MT, partly due to the Hari Raya festivities. Palm-oil exports declined by a higher 19.4% mom to 1.38m MT due to lower demand for palmoil products from our top 3 buyers (India, the EU and China). Despite the sharp drop in exports in June19, palm-oil inventory levels continued to decline for the fourth consecutive month to 2.42m MT, partially due to an increase in consumption. We still expect global palm-oil inventories to gradually decline with higher exports and higher consumption of palm-oil products going forward, supported by the energy market and food industries, in our view. Overall, we maintain our Neutral rating on the plantation sector.

CPO Production in June Was Lower Throughout Malaysia

Malaysia’s CPO production in June19 declined by 9.2% mom to 1.52m MT, due to lower production throughout Peninsular as well Sabah and Sarawak. CPO production in Peninsular, Sabah and Sarawak dropped by 9.9%, 11% and 4.7% mom to 843k MT, 366.6k MT and 308.6k MT respectively. We believe the drop in production was partly attributable to estate workers returning to their hometowns for the Hari Raya Aidilfitri festivities. We expect production to increase again in July. Overall, Malaysia’s CPO production for 1H19 was up by 9.8% yoy to 9.8m MT, underpinned by improving FFB yields and CPO oil extraction rates. We expect Malaysia’s 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: 20.3m MT).

Exports of Palm-oil Products Declined by 19.4% Mom to 1.38m MT

Palm-oil exports in June19 declined by 19.4% mom to 1.38m MT, mainly attributable to weaker demand from our top 3 buyers. Exports to India, China and the EU dropped by 19.9%, 15.4% and 10.9% mom respectively, to 423.621k MT, 107.6k MT and 182k MT. The lower palm-oil exports in June19 could partly be due to their earlier stocking-up activities done prior to the Hari Raya celebration, in our view. For 1H19, total exports rose by 13.9% yoy to 9.38m MT.

Stock Level Declines for the Fourth Month to 2.42m MT

Malaysia’s palm-oil inventory in June19 declined for the fourth straight month, down by c. 23.6k MT mom (or -1%) to 2.42m MT (record high of 3.2m MT was recorded in Dec18). This is the lowest inventory level in the past 11 months, and we think this is partially attributable to an increase in palm-oil products consumption.

Source: Affin Hwang Research - 11 Jul 2019