The palm oil stockpile reported by the Malaysia Palm Oil Board (MPOB) fell below the 2mn mark in March 2024. This was the second time it came less than 2mn tonnes since August 2023, marking its lowest level in eight months. The stockpile, amounting to 1.71mn tonnes (-10.7% MoM), fell below the consensus estimate of 1.76mn to 1.79mn tonnes. The drop was mainly due to higher exports (+28.6% MoM) and lower imports (-32.7% MoM). Production increased by 10.6% MoM (+8.1% YoY) to 1.39mn tonnes, slightly surpassing the consensus forecast of 1.36 to 1.38mn tonnes. Finally, the domestic usage decreased by 32.7% MoM to 21.9 thousand tonnes. Overall, we view the MPOB data as bullish for the market.
CPO production increased to 1.39mn tonnes after four consecutive months of decline. On a YoY basis, it increased by 8.1%. The increase in production in March followed the seasonal trend, as February typically has shorter working days due to the Lunar Chinese New Year holidays. Regarding FFB yield, Peninsular Malaysia saw the highest increase in average yield, rising as much as 11.2% MoM to 1.29 tonnes/ha, followed by Sabah, which increased by 6.4% MoM to 1.16 tonnes/ha. Sarawak was flat at 0.9tonnes/ha. Year-to-date, FFB yield increased by 4.5% to 3.5 tonnes/ha, the highest level since 2020. Year-to-date production inched up slightly to 4.05mn tonnes (+3.4% YoY). Looking forward, we expect the production to begin rising again from May onwards after a temporary slowdown in April due to Hari Raya celebration.
Exports rebounded in March and grew by 28.6% MoM to 1.32mn tonnes after four consecutive months of decline. However, YTD, total exports still dropped by 1.6% to 3.69mn tonnes. Looking forward, cargo surveyors Intertek and Amspec estimated that palm oil exports for the first fifteen days of April 2024 would increase by 9.2% and 28.5% MoM to 634k and 697k tonnes, respectively.
We expect the palm oil stockpiles to rise in 2Q, driven by higher production. The return of foreign workers to plantations after the Ramadan festival celebration is expected to accelerate harvesting and improve CPO production. Thus, we may see a peak in production in 2Q, and palm oil prices could be pressured by rising inventories.
Meanwhile, India’s total edible oil stock has declined further from 2.9mn tonnes in January to 2.3mn tonnes on April 1, 2024. India consumes about 1.8mn to 2.0mn tonnes of edible oil per month. However, we observed that India’s palm oil imports decreased to a 10-month low of 485k tonnes in March 2024 from 894k tonnes in December 2023. Meanwhile, for other soft oils, the import share increased from 32% in December 2023 to 58% in March 2024. As mentioned previously, India has been purchasing more soybean and sunflower oils due to negative refining margins in palm oil compared to soybean oil and other rival oils. This has prompted buyers to switch to other soft oils.
Note that the premium of soy oil futures over palm oil futures has decreased from its peak of USD803/tonne to around USD121/tonne recently.
On the other hand, the harvest of soybeans in Brazil is accelerating and has reached 85%, and Argentina's soybean harvest progress has also reached about 10%. According to The United States Department of Agriculture’s (USDA) April 2024 Oilseeds reports, the combined soybean production of the two countries is expected to reach a record high of about 200mn tonnes in 2023/24. This reaffirms that a bumper soybean harvest in South America is almost certain, and the supply may flood the market very soon, in our view.
We reiterate our UNDERWEIGHT recommendation for the Plantation sector. No change to our 2024 average CPO price estimate of RM4,000 per tonne. We would review our assumptions under certain conditions if: South America's soybean supply turns out to be lower than market expectations, a more promising demand recovery story, and significant reductions in production costs.
Maintain BUY recommendation on KIML (TP: RM2.50), Willmar (TP: SGD4.00), and HOLD on UMCCA (TP: RM5.38). Meanwhile, IOICORP (TP: RM3.79), KLK (TP: RM21.50), and TSH (TP: RM1.14) remain as SELL. We upgrade our recommendation for FGV (TP: RM1.50) to HOLD and downgraded SIMEPLT (TP: RM4.46) to SELL from Hold due to limited upside.
Source: TA Research - 16 Apr 2024
Chart | Stock Name | Last | Change | Volume |
---|
2024-08-24
KLK2024-08-24
TSH2024-08-23
KLK2024-08-23
KLK2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
SDG2024-08-23
TSH2024-08-23
TSH2024-08-23
TSH2024-08-23
TSH2024-08-22
KLK2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-22
SDG2024-08-21
KIMLUN2024-08-21
SDG2024-08-20
FGV2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-20
KLK2024-08-19
FGV2024-08-19
FGV2024-08-19
KLK2024-08-19
UMCCA2024-08-19
UMCCA2024-08-19
UMCCA2024-08-19
UMCCA2024-08-16
KLK2024-08-16
UMCCA2024-08-15
KLK2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-15
SDG2024-08-14
FGV2024-08-14
FGV2024-08-14
FGV2024-08-14
FGV2024-08-14
KLK2024-08-14
KLK2024-08-14
KLK2024-08-14
TSH2024-08-14
UMCCA2024-08-13
FGV2024-08-13
IOICORP2024-08-13
KLK2024-08-13
SDG2024-08-13
SDG2024-08-13
SDGCreated by sectoranalyst | Aug 23, 2024
Created by sectoranalyst | Aug 23, 2024
Created by sectoranalyst | Aug 23, 2024
Created by sectoranalyst | Aug 23, 2024