MALAYSIAN planters are expected to record strong 1Q 2022F earnings as average crude palm oil (CPO) prices have risen by 55% year-on-year (yoy) and 19% quarter-on-quarter (qoq) to RM6,039/metric tonne (MT).
Moreover, findings from a survey of planters by the CGS-CIMB Futures team revealed that Malaysia’s CPO output likely grew 17.9% mom (but fell 5.8% yoy) to 1.34 million MT in March.
Meanwhile, palm oil exports likely grew 7% mom (but fell 0.7% yoy) to 1.17 million MT based on export statistics by cargo surveyors SGS (+7.2% mom) and Amspec Malaysia (+6.7% mom).
“We estimate that Malaysia’s palm oil inventory probably grew 2.8% mom and 7.9% yoy to 1.56 million MT as of end-March 2022F,” projected head of research Ivy Ng Lee Fang in an agribusiness outlook.
“The likely mom rise in stock level is a divergent compared to historical trend in Malaysia’s March palm oil stock movements (average: -1% mom over the past 10 years).”
In fact, CGS-CIMB Research’s March 2022F palm oil stock level forecast of 1.56 million MT is 20% below the 10-year historical March average of 1.95 MT tonnes, suggesting tight supplies. Official figures will be released on April 11.
To re-cap, spot CPO price in Malaysia has fallen 21% from its year-to-date (YTD) peak of RM8,076.5/MT on March 2 to RM6,357/MT on April 4.
This could be partly due to issuance of more export permits for palm oil of 3.51 million tonnes between Feb 14 and March 16 by Indonesia and the cancellation of its Domestic Market Obligation (DMO) and Domestic Price Obligation (DPO) on March 18 which had previously restricted exports of Indonesia’s palm oil.
In essence, CGS-CIMB Research expects three key events/developments to dictate CPO prices for April:
- Russia-Ukraine crisis: On March 31, Russia announced that it will ban seed exports from April 1 to Aug 31 and impose export quotas of 1.5 million MT for sunflower oil and 700,000 MT for sunflower meal from April 15 to Aug 31 this year. This will reduce availabilities of sunflower oil in the export market, forcing some customers to substitute with alternative edible oils (soya oil, palm oil or rapeseed oil).
- Rise in soybean cultivation: A recent survey of US planting intentions revealed that US farmers favoured planting soybean (+1.52 million hectares vs. 2021’s actual planting to 36.8 million ha) over corn (-1.56 million ha to 36.22 million ha) in 2022 due to sharper rise in corn production costs. The potential higher soybean supplies from US have weaken soybean prices.
- Foreign workers recruitment by Malaysian palm oil producers: This follows the memorandum of understanding (MOU) between Malaysia and Indonesia on April 1 on the placement and protection of Indonesian domestic workers. Should the foreign worker shortage be alleviated, it will boost production from Malaysian estates.
All-in-all, CGS-CIMB Research reiterated its “neutral” outlook on the plantation sector with Kuala Lumpur Kepong Bhd (“buy”; target price: RM29.57); Genting Plantations Bhd (“buy”; TP: RM9.18) and Hap Seng Plantations Bhd (“buy”; TP: RM2.79) as its top picks. – April 6, 2022
