• Malaysia’s CPO production in Feb21 is likely to be relatively flat mom at 1.12m MT, but exports are likely to have declined by c.6% mom to 0.9m MT, according to a survey done by Affin Hwang Futures
• Palm-oil inventory in Feb21 probably stood at 1.5m MT (+13.2% mom), an increase for the second consecutive month on lower exports data
• CPO price averaged at RM3,895.50/MT in Feb21 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

Feb21 Production Likely to be Relatively Flat Mom

Based on a survey done by Affin Hwang Futures, Malaysia’s CPO production in Feb21 is likely to be rather flat mom at 1.12m MT (-0.7%), due partly we believe to a crop recovery (especially at Peninsular estates) but offset by fewer working days in Feb21 as well as some protective measures at the estates (testing of workers) against the spread of Covid-19. Estates in Peninsular Malaysia reported a mom increase in CPO production, while CPO production in Sabah and Sarawak are likely to be lower mom. For Mar21, we expect Malaysia’s CPO to rise by 8% mom, after a low base in Feb21 and as weather conditions slowly improve after the seasonal monsoon and La Nina factors.

Potentially Lower Exports of Palm-oil Products in Feb21

We project that Malaysia’s palm-oil product exports in Feb21 potentially declined further by c.6% mom to 0.89m MT, as some of the main buyers probably slowed down their purchases given the high CPO prices as well as the reinstatement of the Malaysian export tax since 1 Jan 2021. Also, this would likely be the lowest monthly exports since Feb07.

Inventory Level Potentially Higher at 1.5m MT on Lower Exports

Based on the findings, Malaysia’s palm-oil inventory in Feb21 probably increased for the second consecutive month, up by c.13.2% mom to 1.5m MT, partly attributable to the weaker exports.

CPO Price Averaged at RM3,895.50/MT in Jan21, Up 3.9% Mom

The average MPOB locally-delivered CPO price in Feb21 stood at RM3,895.50/MT, up 3.9% mom (Feb20 CPO ASP: RM2,714.50/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. CPO prices are forecast to trade at RM3,300-3,900/MT in Mar21. We expect CPO production to recover from 2Q21 onwards as the weather normalises after the seasonal monsoon and this could pressure prices downward. We keep our NEUTRAL rating on the sector and our 2021 CPO ASP assumption of RM2,650-2,700/MT.

Source: Affin Hwang Research - 4 Mar 2021