Palm oil stocks preview for Nov 2021F

■ Malaysia’s palm oil stocks likely fell by 6.2% mom to 1.72m tonnes at end- Nov 2021F due to higher export volumes.
■ A survey by CGS-CIMB Futures revealed that Nov 2021 output probably fell 1.3% mom while export volume likely grew 12% mom.
■ Speakers at the virtual IPOC projected CPO price would remain firm in 2021 before declining in the coming months, when supply recovers.

Palm oil inventory likely fell by 6.2% mom in Nov 2021F

Findings from a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s CPO output probably fell 1.3% mom but grew 14.2% yoy to 1.7m tonnes in Nov 2021. Meanwhile, palm oil exports likely grew 11.9% mom and 21.7% yoy, based on export statistics by cargo surveyors Intertek Testing Services (ITS, +13.6% mom), SGS (+13.8% mom) and Amspec Malaysia (+8.2% mom). We estimate that Malaysia’s palm oil inventory probably fell 6.2% mom but grew 9.9% yoy to 1.72m tonnes at end-Nov 2021F. The likely mom drop in stock level contrasts with historical trends of Malaysia’s Nov palm oil stock
movements (average +4% mom over the past 10 years). Our forecast palm oil stock level in Malaysia for Nov 2021F of 1.72m tonnes is 25% below the 10-year historical Nov average of 2.28m tonnes. Official figures will be released on 10 Dec (Fri).

Projected mom drop in output, not as steep as historical averages

Our estimate of a 1.3% mom decline in CPO output to 1.7m tonnes in Nov 2021F is lower compared with the 10-year historical Nov trend of an 8.3% mom decline in output. On top of this, our projected CPO output for Nov of 1.7m tonnes is 1% higher than the past 10- year average of 1.68m tonnes for the month of Nov. The higher estimated achievement for the Nov month output against historical production for the same month could be due to a shift in cropping pattern leading to a slower mom drop in production compared to historical trends despite lingering acute labour shortage issues.

Exports likely grew 12% mom due to higher exports to India and EU

We estimate palm oil exports grew 12% mom and 22% yoy in Nov 2021F to 1.59m tonnes, likely due to higher exports to India and EU. The estimated palm oil exports volume for Nov 2021 of 1.59m tonnes is higher than the historical 10-year average of 1.47m tonnes for the Nov month. We suspect the higher exports are due to restocking activities by customers arising from low stocks at destination countries.

Key events that could impact Malaysian planters in 2022F

Average CPO price rose 5.7% mom and 44% yoy to a record high of RM5,341/tonne in Nov 2021 as global supply of edible oils remained tight. We project spot CPO prices to stay firm in the range of RM4,500-5,500/tonne in Dec 2021F. Some Malaysian planters’ FY22F net profit may be hit by a one-off windfall tax of 33% (Cukai Makmur) to be imposed on taxable profit of Malaysian companies in excess of RM100m in 2022, higher windfall profit levy for East Malaysian palm oil producers when CPO prices rise above RM4,000/tonne and additional taxes on foreign source income that are repatriated to Malaysia. This is partly offset by partial relief of the current labour shortage issue. FGV is hopeful that the first batch of foreign workers will arrive at its estates in 1Q22, pending government approvals. We reiterate our sector Neutral call.