In September, Malaysia's palm oil industry experienced a significant shift as Palm Oil (PO) end-stocks surpassed the crucial 2.0mn tonnes mark, reaching 2.31mn tonnes reflecting a +9.6% MoM increase despite a marginal -0.2% YoY drop. This figure marked the highest end-stocks recorded in 2023 to date. The rise was driven by heightened production, reaching 1.83mn tonnes (+4.3% MoM; +3.3% YoY), coupled with a decline in exports to 1.20mn tonnes (- 2.1% MoM; -16% YoY). This disparity between production and exports has led to a significant rise in overall inventory levels. Both Crude Palm Oil (CPO) and Processed Palm Oil (PPO) stocks experienced substantial increases, with CPO climbing by 14.2% MoM to 1.37mn tonnes, and PPO growing by 3.5% MoM to 942,553 tonnes during this period.
Looking ahead, we anticipate stock levels will continue to remain elevated, fluctuating within a range of approximately +/- 300k tonnes, with a peak expected in October or early November. This expectation is underpinned by: 1) an increase in PO production during its seasonal productive period and 2) sluggish demand that typically follows postfestivities, as a result of the completion and normalization of replenishment activities. These factors are further compounded by heightened competition from Indonesia and other edible oils, particularly Soybean Oil (SBO), rapeseed oil, and sunflower oil.
CPO price to stay in a range of circa RM400/MT above or below RM3,800/MT in the near term. The Food and Agriculture Organization of the United Nations (FAO) Vegetable Oil Price Index (which includes palm oil), registered a decline of -3.9% in September compared to August. This decrease was attributed, in part, to elevated seasonal production and abundant global export supplies. Looking ahead, the anticipation of better-than-expected harvests of soybeans and corn in Brazil and the US, as well as rapeseed and sunflower seeds in Ukraine and Russia, will pose greater competition for PO price. Nevertheless, we maintain our view that the price (MPOBlocal delivery) will likely to hover around RM400/MT above or below RM3,800/MT in the near term. Our opinion is based on several factors: 1) an attractive discount of PO price compared to SBO price, 2) an increase in the biofuel mandate, 3) a weaker Ringgit, 4) rising demand for palm oil from India, driven mainly by restocking activities ahead of festivities, 5) the doubling of palm oil exports to China from 250,000 tonnes to 500,000 tonnes annually following the signing of a memorandum of understanding (MoU) between Sime Darby Oils International Ltd and GuangXi Beibu Gulf International Port Group on September 17, 2023, 6) slower growth in palm oil supply from Malaysia and Indonesia due to reduced yields resulting from ongoing Covid-19 related operational challenges such as labour shortages and inadequate fertilizer application, and 7) the severity of the impending El-Nino climate phenomenon, a concern shared by numerous climate experts, which is expected to have a substantial impact on global agricultural production, including the production of palm oil.
Maintain a NEUTRAL recommendation on the sector with a BUY call on IOI (TP: RM4.50), and a HOLD call for KLK (TP: RM24.05), SIME Darby Plants (TP: RM4.60), GENP (TP: RM5.87), Sarawak Plant (TP: RM2.06), and TSH (TP: RM1.01); whilst a SELL on SOP (TP: RM2.05), FGV (TP: RM1.23), Boustead Plants (TP: RM0.65) and HAPL (TP: RM1.70), though a non-rated for TH Plant.
Source: BIMB Securities Research - 11 Oct 2023
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2024-06-30
TSH2024-06-28
FGV2024-06-28
GENP2024-06-28
HSPLANT2024-06-28
IOICORP2024-06-28
IOICORP2024-06-28
KLK2024-06-28
KLK2024-06-28
KLK2024-06-28
KLK2024-06-27
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SDG2024-06-26
IOICORP2024-06-26
KLK2024-06-26
SDG2024-06-26
SDG2024-06-26
SDG2024-06-26
SOP2024-06-25
IOICORP2024-06-25
IOICORP2024-06-25
KLK2024-06-25
KLK2024-06-25
SDG2024-06-24
IOICORP2024-06-24
KLK2024-06-24
KLK2024-06-24
SDGCreated by kltrader | Jun 24, 2024
Created by kltrader | Jun 11, 2024
Created by kltrader | Jun 11, 2024