Malaysia’s production recovery outstripped a surge in exports, resulting in a mild uptick in inventory to 2.24m tonnes, and – as seasonal upcycle in production progresses – stockpile will rise, albeit a slowincrease and is unlikely to get burdensome. We are OVERWEIGHTon Singapore and Indonesian plantations and maintain NEUTRAL on Malaysia on relative valuations.

• Production recovers further. Production continued to improve (+6.9% MoM), driven by Sabah’s 11.5% MoM improvement as rainfall improved in May after very dry Feb-Apr 2015. As expected, production momentum slowed compared to April’s 13.3% MoM rise (April production normalised from dry weather effect in 1Q of 2014).
• Exports surged. Exports jumped by 37.3% MoM from an abnormally low April number as exports were held back to take advantage of the zero export duty in May. Given the stronger shipment in the second hal of that month, we believe buying got more aggressive following the El Nino declaration on 11 May.
• Local usage eased. Malaysia’s local palm oil consumption slipped 4.6% MoM, which is not aconcern, as it continued to stay above the 200,000tonnes mark.
• Stockpile up. Despite the strong increase in exports, production improvement and higher imports (May: 101,000 tonnes, April: 60,000 tonnes) resulted in the stockpile inching up by 2.5%. We expect inventory to rise further in the months ahead as production is in its seasonal upcycle. The uptick in stockpile is normal at this time of the year and should not be a cause for concern.
• Catalyst watch. El Nino has yet to make its impact in the oil palm regions, but we believe the effects will likely show within the next 1-2 months as we observe the tendency for dry weather to begin inthe JuneJuly period. We advocate buying ahead of the ground confirmation,given that the majority of investors are still on the sidelines and the sector is under-owned.