RHB Investment Research Reports
Plantation - Stock Levels Improved, But Will This Continue?
rhbinvest
Publish date: Wed, 11 May 2022, 10:29 AM
rhbinvest
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All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd
Level 3A, Tower One, RHB Centre
Jalan Tun Razak
Kuala Lumpur
Malaysia
Tel : +(60) 3 9280 8888
Fax : +(60) 3 9200 2216
- Maintain NEUTRAL, with Top Picks: Sarawak Oil Palms (SOP) and Ta Ann (TAH). We highlight the increasing risks of further volatilities in CPO prices should the war end or if Indonesia ends the export ban. We continue to advocate a trading strategy for the sector, in light of the ongoing uncertainties. Winners remain pure Malaysian planters.
- What happens when supply headwinds cease? With the latest development in the form of the ban on exports of CPO and its derivatives in Indonesia, supply and demand fundamentals look even tighter in the short term. However, we believe markets are forward looking and the problem we need to address now is what happens once the Indonesia export ban is lifted, the Russia-Ukraine war ends, and labour shortage is resolved in Malaysia? Stock levels in Ukraine and Indonesia will build up, vegetable oil supply will be abundant and vegetable oil prices will decline. The only question is when this will happen.
- Additional stock of 2.4m tonnes per month in Indonesia with ban in place. Indonesia produces 3.5-4m tonnes of CPO per month, of which approximately 35% is used domestically. For every month the ban is applicable, there will be an additional 2.4m tonnes of CPO in stock, which is c.48% of the closing stock in the country at end-February of 5m tonnes. Even prior to this export ban, Oil World was already projecting that stock levels in Indonesia will rise 33% YoY in 2022F.
- Additional stock of 4.5m tonnes in Ukraine at end of season. As for Ukraine, assuming Oil World forecasts are correct, sunseed stock levels at the end of the 2022 season will also escalate to 4.55m tonnes (from 0.1- 0.2m tonnes in previous years). If the war ends, all this excess stock will also make its way into the market.
- Malaysia’s CPO output rose 3.6% MoM in April, while stocks rose 11.5% to 1.64m tonnes, due to a 17.7% MoM drop in exports. Going forward, we expect demand for palm oil (PO) from Malaysia to come back in May in light of the current Indonesian export ban, while consumers could also switch back to PO in the short term due to the large USD351.00/tonne discount it is currently trading at vs soyabean oil (SBO).
- Our CPO price assumptions are raised to MYR5,300/tonne for 2022 and MYR4,300/tonne for 2023, but we keep our MYR3,500/tonne price assumption for 2024. Given the height of prices currently at above MYR6,000/tonne, we believe it may take some time for prices to fall back, and as such, we also raise prices for 2023. We will adjust our earnings during the upcoming reporting season.
- Maintain our NEUTRAL sector call and continue to advocate a trading strategy for the sector. With the current Indonesia export ban in place, keep BUY on the winners – pure planters in Malaysia (SOP, TAH). Downstream players in Malaysia with no exposure to Indonesia would also benefit given the lack of competition from Indonesia, and this would include SOP, IOI Corp and Genting Plantations.
Source: RHB Research - 11 May 2022
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Discussions
Be the first to like this. Showing 16 of 16 comments
The La Lina factor
Too dry in Canada, USA highplains, Brazil, Paraguay and Argentina have affected canola, soybean and corn production
Even now La Lina is in play again
2022-05-12 06:16
While certain parts are too dry India has experienced cyclones, Greece was hit by tornadoes and floods in NSW, Australia have damaged olive, soybean and canola
Even Malaysia Sri Muda experienced a once in a hundred years flood
2022-05-12 06:19
There is a shortage of labourers in Malaysia and certainly we hope Indon labours can return
but take nothing for granted if Covid 19 virus mutates and borders might shut again leading to continual shortfall
This shortfall of workers also affected farmhands in Australia, Europe and elsewhere leading to slower production and shortfall
2022-05-12 06:22
Now ports of Ukraine are shut by Russian blockage so no export of sunflower oil
Russia in turn got embargo against it's canola and sunflower oil exports
With storage full next crop of sunflower will not have storage space if they do get them harvested
We already know planting shortfall is almost 40% due to lack of fertilizer, damaged fields by Russian land mines and destroyed farm equipments
Even if the little sun flower crops could be harvested the destroyed infrar will hamper it's transport
And no certainty that by then even the remaining export route by trains are still intact due to Russian Missile bombing
With both Ukraine and Russia in a war of attrition it might last 4 years (1914 to 1918: 1st WW1) or 6 years (1939 - 1945: WW2
2022-05-12 06:29
you arrogant cun...calling people with bias mind .Look at yourself in the mirror. Everyone has a right to an opinion. Respect everyone's opinion with an open mind
2022-05-12 08:42
msia cpo stock level improved because the oversea buyers temporarily stopped buying and consume their domestic cpo stock only. Nevertheless their stock level wont last long indefinitely. They will eventually start buying again.
If u read the latest release from the cargo surveyor, u will know that they started buying fenzy early this month, which is about 40% more than the same period last month.
2022-05-12 08:57
Indonesia will soon lift the ban on exports sometime this month. It is not that hard to predict what is coming. As soon as Indonesia is flooded with palm oil, they would want to regain the lost market share from Malaysia. A bigger discount would have to be dished out to regain market share.
2022-05-12 11:41
Lu tau boh ??
At the moment plantation stock are price modestly using sustainable cpo price of Rm 4000 mah!
With the current price above Rm 6000, even if indonesia comeback to the export mkt....that will not affect plantation share price bcos it is not overvalue....as it is not value base on cpo rm 6000 mah!
2022-05-12 11:46
Plantations theme is over. See plantations up a bit only today but O&G Hengyuan and Petronm panic buying again
2022-05-13 11:40
even with Indonesia lifted the export ban, but palm oil price still will remain high, for extreme cast still be above 4000 rm. per ton, Indonesia till will keep the 30 bio diessel programe,consume 10 million ton CPO per year. domestic food usage take 8 million ton, Availability of oil for export is not too alarming. the figure could be could be 3o-35 million ton region.
2022-05-14 00:45
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Post removed.Why?
2022-05-12 06:14