Malaysia’s July production overwhelmed exports. That along with rising imports resulted in stockpile rising to 2.26m tonnes. Rising inventory is normal in 3Q as production rises. We expect palm oil price to hold atMYR2,000 per tonne level and strengthen in 4Q. Maintain OVERWEIGHTon Singapore/Indonesian plantation and NEUTRAL on Malaysia.

Production rises mildly. Production rose by a marginal 2.9% MoM to 1.816m tonnes, with West Malaysia and Sarawak rising by 5% but Sabah’s output dipped by 2.7%. We deem the output weak as July MoM growth has a tendency to hit double-digit. This is one of the indications that weather conditions have been adverse, particularly in Sabah. On a YTD basis, Malaysia’s output grew by 1.2% to 10.861m tonnes.

Exports fall back. After almost reaching 1.7m tonnes in June, shipment eased back by 5.6% MoM to 1.602m tonnes, largely due to reduced shipment to India (-84,300 tonnes). On the other hand, shipment to China improved to 280,000 tonnes but remained below the 300,000-tonne mark. YTD exports were 1.3% lower at 9.426m tonnes.

Local usage stable. Malaysia’s local consumption remained stable at 242,600 tonnes in July, close to this year’s monthly average of 255,000tonnes. This continues to be driven by the B7 biodiesel program me.

Stockpile rises. Inventory rose by 5.3% MoM to 2.265m tonnes amidst the current production upcycle, which is not surprisin g as stockpile usually rises during the peak crop quarter. We do not think stockpile has much room to increase given that this year’s production peak will likely be a muted peak due to unfavourable rainfall.

Catalyst watch. El Nino is still gaining strength, according to weather authorities. We are watching the progress of India’s monsoon, which will have more immediate impact on the supply-demand equation. Maintain OVERWEIGHT on Indonesia/Singapore plantation and NEUTRAL on Malaysia.