Lower CPO Production and Exports, Higher Inventory Level

• Malaysia’s palm-oil inventory in Jan21 increased by 4.7% mom to 1.32m MT, as production outweighed consumption
• CPO prices hovered at RM3,700-3,900/MT in early-Feb21, and we believe this is partly attributable to the tight stock levels, concerns over CPO production on weather uncertainties and strong prices for other edible oils
• These factors could potentially continue to support CPO prices in the shortterm. Maintain NEUTRAL rating on the plantation sector, with IJMP and Ta Ann as our top picks

CPO Production in Jan21 Was Lower at 1.13m MT, Down 15.5% Mom

Malaysia’s CPO production in Jan21 declined by 15.5% mom to 1.13m MT as expected. 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 as well as some protective measures being done at the estates (testing of workers) against the spread of Covid-19. Production was lower in Peninsular, Sabah and Sarawak, down 16.9%, 19.4% and 8.4% mom respectively to 582.8k MT, 263k MT and 280.8k MT. Production for Feb21 could potentially improve mom, in our view, after a low base in Jan21 and as weather conditions improve in certain parts of the country. For 2021, we expect Malaysia’s CPO production to be higher, potentially up c. 2-4% yoy (2020 CPO production: 19.14m MT), mainly due to better weather conditions after the lagged effect of dry weather in 2019 affected palm-oil production in 2020.

Exports decline after the reinstatement of Malaysia’s export tax in Jan21

Malaysia’s Jan21 palm-oil product exports fell slightly more than expected to 0.95m MT (earlier Jan21 expectation: 1.03m MT), down 42.3% mom, given that some of our main buyers like India, China and the EU bought less of our products. Exports to India, China and the EU was down by 74.7%, 23% and 29.5% mom, respectively to 143.2k MT, 113.6k MT and 97.3k MT. This is the lowest monthly exports since Feb07 and we believe the weakness in palm-oil product exports in Jan21 was partly attributable to the reinstatement of Malaysia’s export tax effective 1 January 2021. For 2021, we expect demand for palm-oil product to be higher yoy after being negatively impacted by global lockdowns and closure of their HORECA (Hotels/ Restaurants/Catering) businesses, especially in 1H20 (during the early months of the Covid-19 pandemic).

Inventory Levels at 1.32m MT, Up 4.7% Mom

Malaysia’s palm-oil inventory in Jan21 increased by 59.3k MT (or +4.7%) mom to 1.32m MT, marginally higher than our earlier expectation of 1.27m MT due mainly to the lower-than-expected export data. Nevertheless, this is still the lowest inventory level since Apr09 of 1.29m MT. We expect Malaysian palm-oil supply to remain tight in 1Q21, although on a slowly rising trend, partly attributable to the current low stocks and seasonally low production due to monsoon season.

Source: Affin Hwang Research - 11 Feb 2021