AMID bloated inventories in Indonesia, Malaysia’s palm oil will likely lose market share to the world’s largest palm oil producer in the coming months given the gradual pick up in the Malaysian Palm Oil Board’s (MPOB) stockpile.
Barring any unexpected weather anomaly (especially in Northern Hemisphere this July-August), Maybank IB Research expects crude palm oil (CPO) price to remain under pressure in 3Q 2022 before recovering somewhat in the final quarter of the year.
“The preliminary Malaysia export estimates for shipments in the first 10 days of July 2022 by Amspec and Intertek (independent cargo surveyors) were sharply lower month-on-month (mom) at 308,290 metric tonne (MT)/330,310 MT (-15.2%/-20.5% mom) respectively,” observed analyst Ong Chee Ting in a plantation sector update.
“If this export trend persists into the rest of the month, we could possibly see MPOB’s July stockpile breaching 1.8 million MT level.”
MPOB’s June’s stockpile hit a seven-month high of 1.66 million MT (+9% mom; +3% year-on-year [yoy]) which was 3% below street estimates.
Stockpile rose mainly on higher palm oil output (1.55 million MT; +6% mom; -4% yoy) and lower exports (1.19 million MT; -13% mom; -16% yoy) mitigated by higher domestic consumption (280,000 MT; +5% mom; +8% yoy).
Monthly CPO average selling price (ASP) eased to RM6,106/MT (-11% mom; +59% yoy) in June after hitting a historic monthly ASP (RM6,873/MT) in May. As for palm kernel, ASP eased further to a nine-month low of RM2,792/MT (-24% mom; +13% yoy).
“With a relatively normal-to-good weather, oilseeds yield in the Northern Hemisphere may turn out strong in 2H 2022 (after two years of unfavourable weather and crop yield) and this will add pressure to CPO price as it will coincide with CPO’s seasonal peak output in 2H 2022,” cautioned Maybank IB Research.
“Conversely, any unfavourable condition in the Northern Hemisphere will help sustain oilseed prices and limit CPO price downside.”
All-in-all, the research house retained its “neutral” outlook on the plantation sector with preferred “buy” for IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK).
Meanwhile CGS-CIMB Research expects Malaysia’s palm oil stocks rising by 21.4% mom to 2 million MT by end-July 2022F on higher output (+5% mom) and lower exports (-8% mom).
“We believe CPO prices could trade in the RM4,000-RM5,000/MT range in July 2022F as they face higher-than-usual palm oil export supply from Indonesia after Jakarta tweaked its export policies to accommodate higher exports to clear burdensome stocks in the country,” projected head of research Ivy Ng Lee Fang and analyst Nagulan Ravi.
“We believe weaker 2H 2022F CPO prices coupled with higher operating costs due to the hike in the minimum wage in Malaysia to RM1 effective May 1, higher fertiliser costs as well as the windfall tax (cukai makmur) will lead to lower profit margins in 2H 2022F unless productivity improves.”
As a whole, CGS-CIMB remains “neutral” on the sector while expecting “planters’ dividend yields of 4.9% could be supportive of their near-term share prices despite the bearish sentiment”. – July 13, 2022
