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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Oct 2020, 10:11 AM

 

Plantation - Further Gain In Inventory Levels

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Malaysian palm oil inventory in April rose for the second straight month after registering a monthly gain of 18.3% to 2.04m mt, the highest level in 5 months. The higher-than-expected inventory levels were mainly attributed to a sharp increase in production while exports showed only a small increase. As production is expected to inch up in the coming months, we think CPO prices are likely to remain subdued. At the point of writing, CPO futures were trading at RM1,981/mt while YTD average was at RM2,898/mt. We continue to favour Sarawak Plantation and Ta Ann as we expect their high FFB production growth to provide some cushioning effect to lower CPO prices. Maintain Neutral on the sector with a 2020 CPO price forecast of RM2,300/mt.

  • Inventory rose for the second consecutive month. Palm oil inventory saw the biggest monthly increase since 2014, up 18.3% MoM to 2.04m mt. Still, it was down by 25.1% on the yearly basis. Meanwhile, stock to usage ratio increased from 10% to 12.2% due to a sharp increase in production.
  • A mild growth for the second straight month. Palm oil exports gained 4.4% MoM to 1.2m mt albeit a persistent decline on a yearly basis, down 25.1%. The stronger palm oil monthly exports were led by China (+34.7%), EU (+6.6%) and India (+60.2%) which were partly offset by Pakistan (-7.6%) and US (-16.6%). We believe exports would have been stronger if not because of the shipment issue in Sabah due to the closure of all private jetties operated by the plantation companies. Meanwhile, the demand from India showed the first rise since last Aug albeit it registered a steep drop of 96.7% YoY.
  • Production grew for second straight month. Malaysian palm oil production rose 18.3% MoM to 1.65m mt, the highest level in 7 months. Production in Peninsular Malaysia and East Malaysia grew 18% MoM and 18.6% MoM, respectively. Meanwhile, production is expected to continue growing in the coming months as oil palm trees enter high production season.
  • Average production falling by 19% YoY during the first quarter. Based on the compilation of output data from all the plantation companies under our coverage, only Sarawak Plantation and TSH registered positive growth during the 1Q20. Sarawak Plantation registered the strongest growth, up 11.4% YoY while FGV saw the steepest decline, down 32.6% YoY. On the average, it dipped 14.8% QoQ and 19% YoY.

Source: PublicInvest Research - 13 May 2020

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