Malaysia's palm oil inventory ended 2024 with a low inventory level at 1.7m mt as exports recorded robust growth while production growth moderated. It is also the lowest level since 2021. The full-year CPO price averaged at RM4,250/mt compared to 2023's RM3,832/mt and it was also slightly higher than our forecast of RM4,100/mt. Meanwhile, the CPO price had a short-lived run-up in recent months as it reached a high of RM5,181/mt before retreating to the current level of RM4,632/mt. We also introduce our new CPO price forecast of RM4,200/mt for 2025. Maintain Neutral on the sector.

• Inventory eased to a 19-month low. Palm oil inventories ended the year with a 25.4% drop to 1.7m mt. Meanwhile, the stock-to-usage ratio slipped from 9% to 8.6% as both exports and production fell.
• Exports down to 6-month low. CPO exports saw another steep decline, down 10% MoM to 1.3m mt, mainly dragged by China (-2.3%), India (-18%) and the US (-12.3%), partially offset by strong demand from the EU (+9.7%) and the Middle East (+57.2%). We attributed the weaker demand to two notable factors, namely, uncompetitive CPO prices and solidification of palm oil during winter, which makes it difficult for storage and consumption. For the full-year, exports climbed 11.7% to 16.9m mt, led by all major consuming countries except China (-4.4%).
• Production down for fourth straight month. CPO production retreated 8.3% MoM to a 9-month low of 1.48m mt in Dec. The steep decline was mainly dragged by lower production from Peninsular Malaysia (-10.4%) and East Malaysia (-5.8%). All states contributed lower production in line with the seasonal output trend. For the full-year, CPO production grew 4.2% to 19.3m mt as production in Peninsular Malaysia rose 10.8% while East Malaysia fell 3.2%.
• Indonesia's new biodiesel mandate delays. Indonesia has delayed the rollout of B40 biodiesel mandate (which incorporates 40% palm oil) till February, giving various parties a 1.5-month grace period. Furthermore, the government also plans to raise the biodiesel mandate to B50 next year with plans to completely halt diesel imports.Due to palm oil costing approximately USD400/mt more than crude oil, the Indonesian Palm Oil Fund Management Agency has estimated that the subsidy expenditures will increase by 68%. Currently, this subsidy gap is funded through a palm oil export tax, leading markets to anticipate an eventual increase in export taxes to maintain balance.

Source: PublicInvest Research - 13 Jan 2025