Palm oil stockpile inched up 2.8% MoM to 1.16m tonnes in Jun-21 (highest since Sep-20), as higher exports were more than offset by higher opening stocks and output, and lower domestic consumption. Stockpile likely remain at low level in coming months, as resilient demand from China and increased restocking activities in India will mitigate seasonally higher palm oil output. We maintain our average CPO price assumptions of RM3,200/mt for 2021, as we continue to hold the view that CPO price will trend down more noticeably in 2H21. Top picks are IOI Corp (BUY; TP: RM4.67) and KLK (BUY; TP: RM26.42), and TSH Resources (BUY; TP: RM1.20).

DATA HIGHLIGHTS

Fourth consecutive month increase in palm oil stockpile. Palm oil stockpile rose for the fourth consecutive month, by 2.8% MoM to 1.16m tonnes in Jun-21, as higher exports were more than offset by higher opening stocks and output, and lower domestic consumption. The stockpile fell short of Bloomberg consensus median estimate of 1.65m tonnes, due mainly to lower-than-expected output.

Output remained on uptrend. Total output rose for the fourth consecutive month, by 2.2% MoM to 1.61m tonnes in Jun-21, led mainly by several states including Sabah, Johor, Pahang, Perak and Selangor,

Cumulatively, total output fell 7.6% to 8.36m tonnes in 1H21, due mainly to border closure (arising from Covid-19 pandemic), which has in turn resulted in labour shortfall in oil palm plantation estates.

Lower exports to India were more than mitigated by higher exports to China and Pakistan. Exports resumed on uptrend, rising by 11.8% MoM to 1.42m tonnes in Jun21, as lower exports to India (-27.8%, as stock replenishing activities slowed ahead of import duty reduction in end-Jun, we believe) were more than mitigated by higher exports to China (+47.4%) and Pakistan (+32.3%).

Exports for the first 10 days of Jul-21. Preliminary data (from Amspec Agri and Intertek Services) indicated that palm oil exports remained on uptrend rising by 2.1- 3.9% to 402.5-418.1k tonnes during the first 10 days of Jul-21.

HLIB’s VIEW

Forecast. We believe stockpile will likely remain at low level in coming months, as resilient demand from China and increased restocking activities in India (following Indian government’s move to reduce base import tax on CPO) will mitigate seasonally higher palm oil output. We maintain our average CPO price assumptions of RM3,200/mt for 2021 (vs. YTD average CPO price of RM4,046/mt) and RM2,800/mt for 2022-23, as we continue to hold the view that CPO price will trend down more noticeably in 2H21, on the back of (i) improving supply visibility for most vegetable oils in coming season, and (ii) limited demand growth potential for vegetable oils (including palm oil) amidst high vegetable oil prices.

Maintain Neutral. Maintain Neutral rating. Top picks are IOI Corp (BUY; TP: RM4.67) and KLK (BUY; TP: RM26.42), and TSH Resources (BUY; TP: RM1.20).

Source: Hong Leong Investment Bank Research - 13 Jul 2021