The Malaysia Palm Oil Board (MPOB) reported a 6.3% drop in palm oil stockpiles, which fell to 1.88mn tonnes after the last two consecutive months of increase. The stockpiles were lower than market expectations, primarily due to a 1.3% MoM decline in production and an unexpected 11.1% rise in exports, which reached 1.73mn tonnes. Imports surged more than 100% MoM, while domestic consumption rose 49.8% to 208k tonnes.
YTD, the production increased 6.7% YoY to 16.23mn tonnes, offsetting a 13.7% YoY rise in exports to 14.06mn tonnes. On the other hand, the imports fell 76.4% YoY to 193k tonnes, and the domestic consumption declined by 18.8% to 2.78mn tonnes. Overall, the data suggests a bullish market outlook.
CPO production declined by 1.3% MoM and 7.2% YoY, totalling 1.80mn tonnes. This decrease suggests that the production has already peaked in August at 1.89mn tonnes, with the low production season beginning earlier than expected, which is unusual based on historical data. Over the past 15 years, the peak production has occurred in August twice, September four times, and October nine times, with October being the most frequent month for production peaks.
YTD, CPO production increased by 6.7% compared to the same period last year, reaching 16.23mn tonnes. This growth is primarily attributed to improved harvesting efficiency, following the resolution of earlier labour shortages that had previously hampered production levels.
Exports were robust at 1.73mn tonnes (+11.1% MoM, +43.0% YoY), likely driven by Deepavali restocking and seasonal purchasing from China ahead of the winter season, as palm oil would solidify at cold temperatures. This helped to support CPO prices. YTD, exports have grown by 13.7% compared to the same period last year, totalling 14.06mn tonnes.
The price of CPO has surged by approximately 15%, now exceeding RM5,000/tonne compared to last month. This increase is attributed to anticipated low inventory levels and a seasonal production downturn. Additionally, the implementation of Indonesia’s B40 biofuel mandate is projected to raise feedstock demand by around 3mn tonnes, bringing the total to 13.9mn tonnes.
The increase in CPO prices is also likely influenced by the rise in soybean prices, driven by China’s panic buying amidst potential tariffs that could be imposed by the new US President next year. Donald Trump has proposed tariffs of up to 60% on Chinese goods and a 10-20% levy on all foreign imports. However, we do not anticipate that potential U.S.-China trade tensions will significantly impact soybean imports in the coming months. The primary export window for U.S. soybeans runs from October through January, after which Brazilian soybeans will dominate Chinese imports starting in February. During Trump’s previous term, there was a six-month gap between his announcement of additional tariffs on Chinese imports and their implementation. As such, any new tariffs are more likely to impact crop exports in the following year, in our view.
Meanwhile, in the first ten days of Nov 2024, export data from Intertek (-15.8% MoM) and Amspec (-14.6% MoM) indicate a significant decline in demand, suggesting that palm oil exports may experience a sharp decrease in November following a robust surge in October. Additionally, the substantial premium price of palm oil over other edible oils could reduce its competitiveness in the market, leading to weaker demand, especially in price-sensitive markets like India. On the other hand, easing tensions in the Middle East could lead to a slight decline in oil prices, which may indirectly impact CPO prices. We do not rule out the possibility of a substantial downturn in CPO prices come December.
We place our target price and recommendation for the companies under review, pending the release of 3QCY24 results performance by this month. 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. Our assessment remains, but we would review our assumptions if: 1) South America's 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.
Source: TA Research - 12 Nov 2024
Created by sectoranalyst | Nov 12, 2024
Created by sectoranalyst | Nov 11, 2024
Created by sectoranalyst | Nov 11, 2024
Created by sectoranalyst | Nov 11, 2024