The Malaysia Palm Oil Board (MPOB) reported a 7.3% increase in palm oil stockpiles, reaching 1.88mn tonnes in Aug-24, highest since Feb-24. This unexpected rise in stockpiles resulted from higher production of 1.89mn tonnes (+2.9% MoM) and weaker exports totalling 1.53mn tonnes (- 9.7% MoM). Imports fell by 4.9% MoM to 10.0mn tonnes, while domestic consumptions rose slightly by 4.7% MoM to 249.9k tonnes.
YTD, production has grown by 10.2% YoY to 12.61mn tonnes, offsetting the increase in exports (+11.1% YoY to 10.74mn tonnes). Imports have decreased by 76.2% YTD to 172k tonnes, and domestic consumption has declined slightly by 5.3% YoY to 2.45mn tonnes. Overall, MPOB's Aug data indicates a Neutral market outlook.
CPO production increased by 2.9% MoM and 8.0% YoY, reaching a total of 1.89mn tonnes. As we have previously noted, if this positive trend continues, production will likely return to prepandemic levels with annual output of approximately 20mn tonnes.
YTD, production rose by 10.2% compared to the same period last year, totalling 12.61mn tonnes. This growth was primarily attributed to enhanced harvesting activities, following the resolution of earlier labour shortages. This, coupled with seasonal factor, would continue to drive production higher in upcoming months.
In Aug-24, exports fell 9.7% MoM to 1.52mn tonnes. However, YTD exports increased by 11.1% compared to the previous year, reaching 10.74mn tonnes. Looking forward, cargo surveyors Intertek and Amspec forecast lower palm oil exports for the first ten days of Sep 2024, down 4.6% and 5.2% MoM, to 449k tonnes and 413k tonnes, respectively.
Malaysian three-month palm oil futures declined by 0.7% compared to the previous week. The primary cause was due to weak exports from major palm oil producing regions. Shipping survey data shows that Malaysia's palm oil exports in Aug-24 decreased between 9.4% and 11.5% MoM. Combining this with a broader downturn in external markets would exert further downward pressure on futures prices. In India, the largest importer of edible oils, traders estimate that Aug- 24 palm oil imports would fall by 27% MoM due to sufficient domestic stockpiles and negative processing margins for imported palm oil, causing refiners to reduce their purchases.
Additionally, the narrowing price gap between palm oil and rival oils would further reduce Indian buyers' interest in palm oil. Elsewhere, the tail-end of China’s stockpiling amid the Mid-Autumn Festival suggests that China’s demand would normalise. All in all, there is no major catalyst to boost CPO demand in the near future. All eyes are on Federal Reserve’s rate cut and the impact on crude oil prices in September.
We reiterate our Neutral recommendation for the Plantation sector. No change to our 2024 average CPO price estimate of RM4,000/tonne and RM3,800/tonne for 2025. We would review our assumptions if: 1) Global soybean supply turns out to be lower than market expectations, 2) a more promising demand recovery story, 3) lower-than-expected palm oil production, and 4) significant reductions in production costs. We maintain BUY for IOICORP (TP: RM4.17) and Wilmar (TP: SGD3.56); HOLD for SDG (TP: RM4.70), KLK (TP: RM23.31), UMCCA (TP: RM: 5.59) and KIML (TP: RM2.50); and SELL for FGV (TP: RM1.19) and TSH (TP: RM1.07).
Source: TA Research - 11 Sept 2024
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KIMLUN2024-09-27
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UMCCACreated by sectoranalyst | Oct 07, 2024
Created by sectoranalyst | Oct 04, 2024