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Stockpile rose to 14-month high, but still relatively tight

August stockpile surprised the market negatively

MPOB’s August 2021 stockpile rose to 1.87mt (+25% MoM, +10% YoY), ahead of street estimates of 1.74mt. Key surprise was the weak August exports although there is preliminary sign of an export recovery in September. Positively, India once again cut its import duties of palm oil, SBO and SFO by 5-ppts over the weekend, likely to spur more imports. Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.

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Highest stockpile since June 2020

The higher MoM August stockpile was due to a combination of factors, but mainly on seasonal production recovery, lower-than-expected exports, and higher-than-expected imports (Fig.1). August’s CPO production rose +12% MoM to 1.70mt, but still lower compared to a year ago (-9% YoY). Key surprise was the drop in exports to 1.16mt (-17% MoM,
-26% YoY). By geographical breakdown, exports were weaker MoM to all key export markets except Bangladesh, India and Pakistan (Fig.2). Meanwhile domestic consumption was also weaker (0.25mt; -14% MoM, – 19% YoY), perhaps due to FMCO and travel restrictions.

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Prelim. export estimates for Sept looking positive

The preliminary MY export estimates for shipments in the first 10 days of September by Amspec (an independent cargo surveyor) shows positive sign of recovery with recorded exports of 554,875t (+50% MoM). However, if the current export trend do not sustain into the rest of the month, MPOB’s stockpile may continue to rise in September as MY is currently in its peak production cycle. Nonetheless, the present acute shortage of workers (said to be at least 20-30% short) will lead to some crop losses due to inability to harvest all the FFB on a timely manner. This follows
the foreign workers hiring freeze since 2020 due to COVID-19 and as some workers chose to return home upon contract expiry. MPOB has recently cut its outlook for MY’s CPO production to 18mt (-6% YoY), compared to its earlier forecast of 19.7mt at the start of the year.

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India has cut its import duties again

CPO price no longer trades at massive discounts recorded in May-June period. Its discounts are now normalized in absolute terms to other key vegetable oils, namely US’s 1M SBO (USD123/t), Argentina CIF Rotterdam (USD140/t), and Germany’s rapeseed oil (USD337/t) – Figs.7-12. We maintain our view that current high CPO price is not sustainable, more so if palm oil stockpile continues to grow from here on weak export demand. A wider discount is needed to stimulate demand again. Positively, India has over the weekend announced further cut in import duties of CPO, crude SBO, crude SFO, Palm Olein and Refined SBO by 5- ppts (see Fig.20) ahead of its Divali festival. This will likely help improve short term demand from India. In the Northern Hemisphere, US’s soybean (and corn) early harvesting will start by month end. USDA, in its latest WASDE report, has raised US soybean production forecast by just 0.8% MoM due to the much needed rainfall it experienced late last month.