PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 11 Jun 2021, 10:56 AM


Plantations - CPO Prices Soared Despite Easing Concern

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Malaysia’s palm oil inventories jumped more-than-expected to a 5-month high in April as production continued to expand. Despite the rising inventory level, CPO futures surged to a record level of RM4,332/mt, tracking the rally in soybean oil. We also note that stock-to-usage ratio was stable due to higher exports. YTD, CPO prices averaged at RM4,045/mt, rising more than 59% compared to a year ago. Pending our CPO price forecast review, we maintain Neutral on the sector and our top picks are Sarawak Plantation, Ta Ann and TSH.

  • Inventory continued to see higher. Palm oil inventories extended its gain for a second straight month, up 7.1% MoM to 1.55m mt, the highest level in 5 months. The inventory level beat consensus forecast, which was expecting 1.50m mt. Nevertheless, stock-to-usage ratio was slightly down from 8.5% to 8.4% as export outpaced the production growth.
  • Strong India’s demand pushed exports to 4-month high. Exports extended its gains for second straight month, up 13.2% MoM to 1.33m mt. The stronger exports were mainly led by India (+52.7%), China (+52.8%), Pakistan (+2%) and US (+107%). We believe the strong palm oil exports data due to buyers stocking up ahead of Muslim festival celebration. For the first 4 months, exports fell 7.4% YoY to 4.37m mt, mainly dragged by weaker demand from China (-44%), EU (-37%), Pakistan (-45%) and US (-52%).
  • Another rise for production. CPO production expanded by 7% MoM to reach 1.52m mt, the highest level since Nov. Production in Peninsular Malaysia and East Malaysia rose 3.6% and 11.5%, respectively. The positive data sends a signal that production has been picking up.
  • Widest palm oil-soybean oil spread since 2008. China’s surging soy bean demand collided with bad weather in global growing areas stoked fears of shortages, sending the palm oil-soybean oil spread to USD429/mt, the widest level in 12 years. CPO futures have jumped more than 118% in the past year while soybean oil, palm’s closest substitute, has rocketed 150%. The relentless rally in the soybean oil is increasing palm oil’s appeal as the cheapest edible oil.
  • Anticipating a strong set of quarterly results for 1QCY21. 1Q21 CPO prices averaged at RM3,925/mt, a significant increase of 47% YoY compared to 1Q20’s RM2,664/mt. Amongst plantation stocks under our coverage, only Genting Plantations, IOI Corp and Ta Ann registered weaker CPO production during the quarter.

Source: PublicInvest Research - 11 May 2021

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