THAT the COVID-19 pandemic is rearing its ugly head in India spells bad news for Malaysian planters given the country’s palm oil imports are expected to slow in May and June due to lockdowns which require temporary closure of hotels and restaurants.
Most notably, India’s hotel, restaurants and cafeterias (HoReCa) segment accounts for 40% of the country’s total edible oil demand of 23 million tonnes annually.
According to Solvent Extractors Association of India (SEAI), the country bought about 1.68 million tonnes of crude palm oil (CPO) from Malaysia and 1.29 million tonnes from Indonesia from November 2020 to March 2021.
“The total stock of edible oils as of April 1 had decreased to 1.68 million tonnes which is 16% below the five-year average of 2.0 million tonnes,” observed analyst Angeline Chan in a plantation sector update.
“However, we expect imports to rebound from July onwards with the resumption of restocking activities amid declining COVID-19 infections in the country.”
Moving forward, TA Securities Research does not expect the COVID-19 outbreak to derail CPO’s demand in the long-term given palm oil is deemed both the cheapest edible oil in the world and an essential commodity.
“Meanwhile, the premium of US soyoil over palm oil is as high as US$316/tonne. This has increased the attractiveness of palm oil as a substitute,” suggested the research house. “The widening spread suggests that some soyoil buyers may switch to palm oil purchases.”
All-in-all, TA Securities Research its “overweight” outlook on the plantation sector given expectation of earnings improvement in CY2021 and CY2022, buoyed by high fresh fruit bunch (FFB) production growth and CPO price.
“No change to our CPO price assumption of RM3,000/tonne for CY2021 and RM3,050/tonne for CY2021,” noted the research house.
“Key downside risks to our sector recommendation include (i) upgrade revisions in soybean production estimates; (ii) weaker-than-expected demand in China and India; (iii) delay in global economic recovery due to prolonged COVID-19 pandemic; and (iv) unfavourable government policies which will affect the demand for palm oil. – May 11, 2021