Smaller-than-expected fall in Nov stocks

■ Malaysian palm oil stocks fell 1% mom to 1.82m tonnes as at end-Nov 2021. This was 6% above our predictions due to lower-than-expected exports.
■ We project palm oil stocks to fall by 7.1% mom to 1.69m tonnes as at end- Dec 2021F.
■ Strong CPO prices and expectations of a recovery in production in 2022F will be partially offset by higher fertiliser costs. Reiterate sector Neutral.

Stocks fell 1% mom to 1.82m tonnes at end-Nov

Malaysia’s palm oil stocks fell 1% mom to 1.82m tonnes in Nov 2021 due to lower output and higher exports. The stock level was 6% above our 1.72m tonnes forecast (as per our stock preview note on 6 Dec 21). It was also 2% above Bloomberg consensus’ forecast of 1.78m tonnes and 3% above Reuters’ poll estimate of 1.77m tonnes. The higher inventory was due to lower-than-expected exports and higher-than-expected imports. However, the stock level is tight as it is 20% below the historical 10-year average Nov stock level of 2.28m tonnes.

CPO output fell 5% mom, below historical 10-year average trend

CPO output fell 5% mom but rose 10% yoy to 1.64m tonnes in Nov 2021. The mom fall is broadly lower than its historical 10-year average of an 8% decline in Nov output. However, the Nov output is below the past 10-year average of 1.68m tonnes for the month of Nov due possibly to foreign workers’ shortage. 11M21 output fell 6% yoy to 16.7m tonnes, in line with expectations, making up 93% of our 2021F CPO production forecast of 18.6m tonnes (-6% yoy). We expect the labour shortage problem to only be partially alleviated in 1H22 as the government gradually relaxes the intake of foreign workers.

Higher exports in Nov due to stronger demand from India

Palm oil exports rose 3% mom and 13% yoy to 1.47m tonnes in Nov 21, due to higher exports to India (+36% mom), EU (+43% mom) and the US (+47% mom). The higher exports were likely due to restocking activities. In 11M21, palm oil exports fell 10% yoy to 14.1m tonnes due to w eaker exports to China, EU, Pakistan and the US.

Strong CPO price and higher output will be offset by higher costs

We project palm oil stocks to decline by 7.1% mom to 1.69m tonnes by end-Dec 2021F, with output falling 5% mom and exports rising 2% mom. We project CPO prices to remain firm at RM4,000-5,000 per tonne in Dec 2021F, amid tight near-term global edible oil and palm oil inventories. We maintain our CPO price forecasts of RM4,270/RM3,600/RM3, 240 per tonne for 2021F/2022F/2023F. We are of the view that CPO price could remain high till 1Q22F before trending lower when palm oil supply recovers and crushing activities of oilseeds improve. The strong CPO price and expectations of a gradual return of foreign workers are positives. How ever, these are offset by concerns over rising fertiliser costs in 2022. As such, w e reiterate our Neutral rating; our key picks in Malaysia are KLK, GENP and HSP.