Malaysia’s palm oil stocks shrank more than expected in Malaysia as production tumbled while exports saw a marginal increase. The Nov palm oil data was positive for crude palm oil (CPO) prices. At this point of writing, CPO futures rallied RM167/mt to RM3,904/mt Maintain Neutral call on the plantation sector with a full-year CPO price assumption of RM5,000/mt. Our top picks are Sarawak Plantation and Ta Ann.
- Palm oil stocks fell from 3-year high. For Nov, palm oil stocks retreated 5% MoM to 2.28m mt, as production started coming off after hitting the peak in Oct. It is also the lowest level in three months. Stock-usage ratio softened from 11.2% to 10.3%.
- Exports grew for third straight month. Palm oil exports saw a marginal growth of 0.9% to 2.28m, as demand from the European Union (EU) and India doubled due to the steep price discount between palm oil and soybean oil, as well as stronger demand ahead of the upcoming festive celebrations. Meanwhile, exports to China fell 9.3% MoM.
- Output peaked in Oct. Palm oil production registered the first decline in six months, down 7.3% MoM to 2.28m mt as oil palm trees have entered the low production season. Production from Peninsular Malaysia and East Malaysia fell 10.0% and 4.2%, respectively.
- Targeting higher biodiesel mandate. Indonesia is currently looking at the prospects of higher biodiesel mandate of B35, which is fuel containing a 35% mix of palm oil-based fuel. This would be an increase from Indonesia’s current mandatory 30% mix and is set to reduce the amount of palm oil supply for export from the world’s biggest producer. Separately, Indonesia is planning to increase its CPO export tax to USD52/mt and additional levy to USD90/mt in the later weeks of Dec after lifting its CPO reference price.
- Wide palm oil-soybean price gap attracts demand. Currently, the CPO price is trading at a steep discount of USD496/mt to the soybean oil price. It is significantly wider compared to the 5-year average of USD149/mt. We believe the steep discount will continue to attract demand from price sensitive consuming countries like Pakistan, India and China.
Source: PublicInvest Research - 14 Dec 2022