On a to-date basis, Sabah & Sarawak’s planted area marginally improved to 3.1m Ha, while CPO production and FFB yield increased to 4.6m tonne and 8.20t/ha attributable to the gradual influx of Indonesian labour. PO exports and closing stocks on the other hand, remained steadfast with an incremental increase of +6.0%ytd and +9.5%ytd.
However, export revenue declined by -32.6%ytd to RM19.15b on the back of lower CPO price realised of RM3,850/Mt and RM3,825/Mt for both states in tandem with lower overall Malaysia CPO price of RM3,897/Mt. Following that, to address the revenue volatility issues (mainly resulted from the bulk of pure planters’ coffers proposition), the government established Palm Oil Industrial Cluster (POIC) areas (which covered 7,210 acres and 414 acres in Sabah and Sarawak). These areas are well equipped with different logistics facilities, tax exemption incentives, and investment tax deductions, and it is intended to encourage pure planters’ investment ventures into the downstream segment. However, the investment requires a substantial allocation of CAPEX, hence why the take-up rate is still challenging.
Mixed views from panelists on CPO demand;
1) Mr. Nagaraj Meda; Bracing for ‘Soft Landing’: Mild 2024 Recession Scenario Gains Ground He mentioned crude oil prices are expected to be 5% higher year-on-year during CY23 contributing positively to US CPI in coming months. This shall lead to further rate hike possibility before the end of the year leading to further higher yields. Supportive US yield differential against EM economies to result in the flow of funds to Dollar assets (dollar demand supported) inducing further depreciation in EM currencies. Hence, demand for riskier assets like commodities eg. CPO remains weak.
Mr. Ling Ah Hong; El Nino to Drive Prices? He mentioned major climate events like El Nino/La Nina could change the supply-demand equation and trigger a major price movement, nonetheless, there was a bit of delay in the arrival of the dry weather. But the experts are predicting a moderately strong El Nino from Aug 23- Mar 24 (+95% chance). Additionally, there was an early sign of dryness detected in parts of Indonesia – Kalimantan in August due to the current developing El Nino. Hence, this would usher CPO price to hinge on the high side for CY23-24.
MIDF in its report said while it acknowledges the El-Nino events (which would constrict the supply side) could be a potential
catalyst for the CPO prices to remain elevated for the remainder of the month it is also concerned about its fragile demand outlook on the back inflationary pressure coupled with tight household spending on high base interest rate locally and globally. Furthermore, year-to-date PO closing stocks in major importing countries are still on the high side, such as India China, Pakistan and Bangladesh.
Hence, the house anticipates demand will be sluggish in 2HCY23 ahead and maintains its NEUTRAL stance on the sector.
