Malaysia’s June palm oil exports were lifted almost single-handedly by India. Along with weaker production, inventory eased by 4%. We expect India’s strong demand to continue as its monsoon has faltered, with likely poor crop this season. We expect palm oil prices to strengthen in 2H. We are OVERWEIGHT on Singapore/Indonesian plantation and remain NEUTRAL on Malaysia.

Production takes a breather. Malaysia’s production fell by 2.6% MoM to 1.763m tonnes, mainly due to Sabah’s 7.7% decline. Sabah has been unusually dry this year since February. Until recently, trees were found to display as many as six unopened spears. We expect a seasonal upcycle to lift production in the months ahead. YTD producti on is flat at 9.045m tonnes.

Exports improve further. Following a 37.3% MoM surge in May exports, shipments improved further by 5.2% in June, driven by India’s demand amidst a potential shortfall in its oilseed production this season,coupled with a sufficiently wide USD134/tonne discount to soybean oil. YTD shipments of 7.824m were down 3.5% from last year’s levels.

Local usage improves. Malaysia’s local palm oil consumption rose to 267,500 tonnes in June, the highest in the past five months. We believethere will be further growth in the months ahead as Sarawak’s fifthbiodiesel blending facility becomes fully operational in September. Total local usage of 1.546m tonnes this year represents a growth of 8.1%.

Stockpile eases. Inventory fell back by 4.3% MoM to 2.151m tonnes on stronger demand and weaker production. Amidst the current production upcycle, we expect some further increase in stockpile, although India’s strong demand will likely keep the increase in check.

Catalyst watch. We believe the El Nino has arrived in South-East Asia as Indonesia has started experiencing dry weather compared to regular thunderstorms several weeks ago. More importantly, India’s key oilseed region is now experiencing rainfall which is 76% below normal.