• Malaysia’s CPO production in Jan21 likely fell by c.15.7% mom to 1.13m MT attributable to heavy rainfall brought on by the seasonal monsoon and La Nina, while exports dropped by c.36.7% mom to 1.03m MT, according to a survey done by the Affin Hwang Futures
   
• Palm-oil inventory in Jan21 probably stood at 1.27m MT (+0.4% mom), the lowest level since Jun17, due to weaker exports
   
• CPO price averaged at RM3,748.50/MT in Jan21 and we believe prices will stay supported in 1Q21 underpinned by tight stock levels, concern over CPO production given weather uncertainties, and strong prices of other edible oils. We maintain our NEUTRAL rating on the plantation sector, with IJMP and Ta Ann as our top picks

Production in Jan21 Impacted by Wet Weather

Based on a survey done by Affin Hwang Futures, Malaysia’s CPO production in Jan21 probably declined by c.15.7% mom to 1.13m MT (-4% yoy). We believe the drop in production could be partly due to heavy rainfall brought on by the seasonal monsoon and La Nina that disrupted harvesting and evacuation of FFB. Also, the finding shows that estates in Sabah reported the sharpest mom drop in CPO production, followed by Peninsular Malaysia and Sarawak. For Feb21, Malaysia’s CPO production could rise by 1-2% mom, after a low base in Jan21 and as weather conditions improve in certain parts of the country.

Lower Exports of Palm Oil After Reinstatement of Export Tax

We project that Malaysia’s palm-oil product exports in Jan21 potentially declined by c.36.7% mom to 1.03m MT, as some of the main buyers probably slowed down their purchases after the reinstatement of the Malaysian export tax, effective 1 Jan 2021. To note, Malaysia‘s export tax on CPO stands at 8%, effective 1-31 Jan 2021 from 0% in Dec20.

Inventory Level Potentially at 1.27m MT, Lowest Since Jun07

Based on the findings, Malaysia’s palm-oil inventory in Jan21 probably rose slightly by c.0.4% mom to 1.27m MT, partly attributable to the weaker exports. Nevertheless, this is the lowest inventory level since Jun07 of 1.2m MT.

CPO Price Averaged at RM3,748.50/MT in Jan21, Up 3.5% Mom

The average MPOB locally-delivered CPO price in Jan21 stood at RM3,748.50/MT, up 3.5% mom (Jan20 CPO ASP: RM3,013.50/MT). We believe prices will remain supported in 1Q21, underpinned by tight stock levels, concerns over CPO production given the weather uncertainties, and strong prices of other edible oils. We keep our 2021 CPO assumption of RM2,650/MT.

Source: Affin Hwang Research - 4 Feb 2021