Malaysia’s palm oil stocks rose 6% yoy and fell by 1% mom to 2.42m tonnes in Nov 2023.
Along with this, CGSCIMB Sector Note today (Dec 14) anticipates lower stocks in Dec 2023F due to a decrease in CPO output given the rainy season and higher exports ahead of Chinese New Year. They project Malaysian CPO price to trade in the range ofRM3,700-4,000/MT in Dec 2023F.
Palm oil stocks rise
Malaysia’s palm oil (PO) stocks rose by 6% yoy to 2.42m tonnes in Nov 2023, primarily driven by higher crude palm oil (CPO) production (+6% yoy) due to improvements in fresh fruit bunches (FFB) yield following increased fertiliser application and harvesting activities.
Sequentially, PO stocks fell by 1% mom, marking the first mom decline in closing stocks after expanding for six straight months since Jul 2023. This was mainly due to lower CPO output (-8% mom) following the rainy season, which affected harvesting activities, and a decline in exports (-8% yoy, -6% mom) mainly to China.
CGSCIMB anticipates a further decline in stocks in Dec 2023F due to 1) lower mom CPO output during the monsoon season, and 2) higher exports to China amid restocking activities for the Chinese New Year (CNY) festival.
CPO prices expected to trade in range of RM3,700-4,000 near term
According to the Malaysian Palm Oil Board (MPOB), the average CPO price declined by 9% yoy but increased by 2% mom to RM3,701/MT in Nov 2023, remaining below the RM4,000/MT level.
The 11M23 average CPO price stood at RM3,821/MT.
CGSCIMB projects Malaysian CPO prices to trade in the range of RM3,700-4,000/MT over the next 2-3 months, driven by higher export demand ahead of CNY and lower mom inventory levels.
Further CPO price correction likely in 2024F
CGSCIMB maintains their forecast for average CPO prices of RM3,800/MT for 2023F, with further price correction in 2024F to RM3,700/MT, driven by normalisation in plantation activities and the absence of any material supply shocks given that Covid-19, while still a pandemic, is no longer a health emergency, as determined by the World Health Organization (WHO), while demand should follow an organic pattern.
They believe CPO is unlikely to trade significantly above RM4,000/MT levels for an extended period in the future.
Reiterate Underweight stance on the sector
CGSCIMB reiterate their Underweight stance on the Malaysian agribusiness sector due to limited medium-term growth catalysts and low dividend yield support; the sector has a net yield of 3.2% in 2024F vs. other large cap sectors’ exceeding 4.5%.
The research house top sells are IOI (Reduce, TP: RM3.54) and FGV (Reduce, TP: RM1.10) while top buys are GENP (Add, TP: RM6.62) and TAAN (Add, TP: RM4.53).
Key upside risks to the sector include hike in CPO price, positive surprises in dividend payout. De-rating catalysts to the sector are continual decrease in CPO price and slower-than-expected exports demand for CPO, and continuous margin pressure experiences by the downstream business amid intense competition.
