Malaysia’s November  palm  oil  stockpile  inched  up  towards  2m  tonnes as exports slowed down faster than the seasonal decline in production. Palm  oil’s  price  rally  is  stalling  but  is  likely  to  be  temporary.  However, this  has  not  stopped  plantation  stocks in  Indonesia and  Malaysia  from surging  to  compensate  for  local  currency  weakness.  Maintain NEUTRAL  on  the  sector,  pending  a  review  of  our  palm  oil  price assumption.  

Production  on  seasonal  downtrend.  Malaysia’s November  palm  oil production  eased  to  1.861m  tonnes  (-5.6%  m-o-m)  as  the  seasonal downtrend  in  production  started.  All  states  reported  declines  in production except Sabah, where production still rose 3.1%.  

Shipments  slightly  weaker.  November  shipments  dipped  by  144k tonnes,  or  8.7%,  from  October,  driven  by  Bangladesh  (-46.1k  tonnes), China  (-36.5k  tonnes)  and  Pakistan  (-132.9k  tonnes).  In  contrast, shipments to other key export destinations such as India, Europe and the US climbed.  

Stockpile level within expectations. We believe the stockpile level has reached or is near its seasonal peak. It is now within our expected high of  2.0m-2.1m  tonnes. With  production  expected  to  slow  down  further  in the next three months, inventory level will fall accordingly.  

Local  consumption  slows  down.  Local  consumption  was  lower  at 222.3k  tonnes  compared  with  267.9k  tonnes  in  October,  but nevertheless remained above the 200k-tonne level.  

The  score  YTD.  With  another  month  to  go  before  the  year  is  over, Malaysia’s  YTD  production  amounts  to  17.5m  tonnes,  or  3.2%  higher than last year. Exports have risen 4.1% to 16.6m tonnes YTD while local consumption  is  14.3%  higher  at  2.1m  tonnes,  likely  due  to  the conversion  to  biodiesel.  Meanwhile,  imports  of  palm  oil  slumped  59.3% to 531.2k tonnes due to a surge in Indonesia’s refining capacity.  

Better outlook next year. We believe that palm oil price will continue to strengthen  next  year.  Our  existing  average  palm  oil  price  is  MYR2,600 per  tonne  vs  MYR2,400  this  year.  We  maintain  our  NEUTRAL  sector recommendation for now, pending a CPO price review.

Source: RHB