Malaysia’s CPO production started the year at 1.38m tonnes versus 1.25m tonnes in subsequent year banking contribution from most of the states except for Kedah due to the wettest month of the year. The average FFB yield surged by +8.2% year-on-year to 1.19 t/ha, while OER was marginally higher to 19.71% due to favourable weather amidst improving foreign labour inflow.
In view of this trend, MIDF for 1QCY23 expects the performance will be tapered off a bit due to the palm trees entering the pollination cycle and the continuation of uneven weather seasons, resulting in difficulty in the FFB evacuation process.
Palm oil (PO) export volumes eased in January at 1.14m tonnes as traders rebalancing PO with SBO due to narrowed price competitiveness against SBO averaged USD454.6Mt discount parity based on January’s 3-month future price. MIDF anticipates flattish demand ahead in absence of the festival season which only starts in April due Eid al-Fitr festival.
Closing stockpiles in January-23 surged by +46.1%yoy to 2.27m tonnes vs. 1.55m tonnes taking a toll on flat demand as well improved FFB yield and OER. Both stocks, CPO and PKO were up respectively, fuelled by robust contributions from the Peninsular, Sabah, as well as Sarawak areas. MIDF believes the Malaysian PO stockpiles to continue to recover to the pre-pandemic level on improved harvesting activities.
In January, the local CPO delivery price started the year marginally higher at RM4,165.50/t, but averaged monthly lower at RM3,922.00/t (-1.0%mom; -26.8%yoy) on better than expected output numbers. Currently, the discount parity between Malaysian and Indonesian CPO prices is USD427.7/Mt, with a three-year average of USD246.2/Mt. Aside from note, Indonesian prices were traded narrower discount to Malaysia due tighten export rules for PO in a move aimed at
ensuring sufficient domestic supply. Overall, we expect Malaysian local delivery prices to be lower in CY23, ranging between RM3,000 and 4,000, on the expectation of normalisation closing stocks of 2.0-2.1m tonnes.
The research house remains neutral on the sector as the CPO price is expected to trade volatile in the months of February to March at circa RM3,500/mtRM4,000/mt benefiting from price disparity between CPO against SBO price which to-date amounted USD445.0/Mt and 3 years average of USD246.2/Mt, based on 3months future price.
However, MIDF said it also recognises its downside risk on fragile demand outlook on the back inflationary pressure coupled with tight household spending on high base interest rate locally and globally another Indonesian extension of zero-levy policy for PO exports in CY23.
Top picks for plantation companies are Sime Darby Plant. (TP: RM5.50) and Sarawak Plantation (TP: RM2.60).
