Indonesia’s peak crop may have been delayed to Q4

MPOB’s stockpile hit a 6-month high due to weak exports. CPO spot prices have remained lofty of late, no thanks to slower than anticipated ID’s output recovery in July and Aug (while MY enjoyed good recovery). CPO price now trades at near parity or narrowed discounts against major competing veg. oils. We believe the peak crop period in ID has been delayed to 4Q24. If it materialises, we believe CPO spot price will come under some selling pressure in the coming weeks. We retain our NEUTRAL view on the sector. Our BUYs are SDG, SOP, TAH & BAL.

Higher August stockpile within market estimates

As anticipated, MPOB’s August 2024 stockpile trended higher MoM to 1.88mt (+7% MoM, -11% YoY), and was broadly within street’s estimates of 1.86mt. The MoM increase in stockpile was driven by seasonally higher output (1.89mt; +3% MoM, +8% YoY) coupled with a decline in exports (1.53mt; -10% MoM, +25% YoY). Meanwhile, August’s consumption inched up to 0.25mt (+5% MoM, -1% YoY) while imports slipped further to just 0.01mt (-5% MoM, -91% YoY) as Indonesia’s domestic CPO price stayed unattractive to the Malaysian-based refiners.

Prelim. export estimates for Sept. are uninspiring

The preliminary Malaysian export estimates for shipments in the first 10 days of September 2024 were weak as independent cargo surveyors such as Amspec/Intertek reported MoM decrease to 412,771t/ 448,985t (-5%/- 5% MoM respectively). If such weak export estimates persist through the month of Sept (amidst current peak crop period), we expect a further pick- up in stockpile by month-end to 2.0mt. We continue to anticipate sequential build-up in monthly stockpile at least till end-October.

CPO price not competitive vis-à-vis other veg. oils

Across the Pacific Ocean, US’s soybean and corn crop progress and conditions remained favourable the past month, and now at their best conditions in 5 years (Figs.27-28). While the market anticipates good upcoming harvest in the US in Sept/ Oct, the soybean futures price has recently rebounded from its low on concerns that the dry weather in Brazil is delaying the start of the new soybean planting season there. The market will be keenly observing weather developments in South America in the coming weeks/months for fresh price discovery. Brazil is, after all, the largest grower of soybean in the world (followed by the US). As for CPO, the recent price strength has emanated from the lack of CPO supply in Indonesia as strong production recovery in 2H24 has yet to materialize due to biological tree rest. This is reflected in the high domestic CPO price in Indonesia the past 2 months. CPO is no longer price competitive compared to soyoil, sunflower oil and rapeseed oil in Europe, trading at near parity or narrowed discounts compared to historical averages (see Figs. 6-11). We believe as CPO output recovers in Q4, CPO price will need to widen its discount against competing vegetable oils to boost demand.

Source: Maybank Research - 19 Sep 2024