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Raising our CPO ASP outlook to reflect cost pressures

MPOB’s Oct 2021 stockpile rose MoM to 1.83mt (+4% MoM, +17% YoY), within street estimates of 1.82mt. CPO price will stay relatively lofty till 1Q22 on supply concerns as the industry is likely to enter into low production cycle the next three months. Given better-than-expected CPO ASP in recent months, we now raise our 2021 CPO ASP forecast to MYR4,300/t (from MYR3,500/t), and 2022 ASP to MYR3,200/t (from MYR2,800/t). Higher prices are needed to cover for rising cost pressures. Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.

October stockpile inched up 4% MoM

The higher MoM Oct stockpile was mainly due to weaker exports (1.418mt; -12% MoM, -15% YoY) relative to the flattish output (1.725mt; +1% MoM, flat YoY). Output was a pleasant surprise given labour shortages faced by the industry. By geographical breakdown, exports were lower MoM to all key export markets except Turkey and China (Fig.2). As India lowers its import taxes on palm oil and lifted restrictions on processed palm oil (PPO) imports recently, MY has been losing market share to ID especially on PPO exports as ID has a more favourable export tax structure for its downstream products. Meanwhile, MY’s domestic consumption was slightly lower MoM at 0.28mt (-3% MoM, +15% YoY), and imports were subdued (0.05mt; -33% MoM, +11% YoY).

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Preliminary export recovery seen in early Nov

The preliminary MY export estimates for shipments in the first 10 days of November by Amspec and Intertek (independent cargo surveyors) injected some optimism on an export recovery at 543,944t/571,450t (+9%/+8% MoM) respectively. If the present export trend can be sustained for the rest of the month, there is hope that MPOB’s stockpile may end the year below 2.0mt as production output will likely enter the seasonally low output cycle from December onwards.

CPO ASP likely to average ~MYR4,300/t in 2021

We maintain our view that the current high CPO price is not sustainable as a wider discount is needed to sustain demand. Recent 1M FCPO price rally to above MYR5,200/t has narrowed CPO price discounts to US 1M SBO (USD22/t) and Argentina CIF Rotterdam (USD145/t) to below their historical averages – Figs.7-12. YTD, CPO spot / 3M FCPO have averaged MYR4,298/ 4,049/t respectively. We maintain our view that CPO ASP will stay lofty till 1Q22 and thereafter drift lower towards mid-2022. We now raise our 2021 CPO ASP forecast to MYR4,300/t (from MYR3,500/t), 2022 ASP to MYR3,200/t (from MYR2,800/t), and 2023 ASP to MYR3,000/t (from MYR2,800/t). Our higher CPO ASP forecasts for 2022-2023 is mainly to reflect rising cost pressures especially from the recent spike in fertilizer and crude oil costs that are affecting other oilseeds crop too. Logistical
challenges in securing fertilizer, the lack of fertilizer applied in recent years (especially among smallholders in MY and ID), and labour shortages in MY (for now) will likely continue to limit global palm oil supply recovery in 2022. We will reflect these price and cost changes in our EPS forecasts throughout the upcoming results release upon fresh guidance on output outlook and forward sales (if any).