Still tight November stockpile

CPO price to stay lofty till end-1Q22

MPOB’s Nov 2021 stockpile was marginally lower MoM at 1.82mt (-1% MoM, +16% YoY). Although it is slightly higher than street estimates of 1.78mt, the stockpile is tight by historical standards. As the industry enters into low productivity months, CPO price will stay relatively lofty till 1Q22. High fertilizer prices and disrupted fertilizer supplies may force growers to cut back on fertilizer use globally, potentially impacting yields in 2022. Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.

November stockpile marginally lower MoM

Lower MoM production at 1.63m (-5% MoM, +10% YoY), higher exports (1.47mt; +3% MoM, +13% YoY), and higher domestic consumption (0.28mt; +2% MoM, -10% YoY) contributed to lower MoM Nov stockpile. Stockpile would have been even lower if not for a pick-up in imports (0.1mt; +92% MoM, -14% YoY). By geography, exports were higher MoM to all key export markets except to China, Pakistan, Turkey and Others (Fig.2). Exports to India were surprisingly strong despite it being post Diwali.

Flattish prelim. export estimates seen in early Dec

The preliminary MY export estimates for shipments in the first 10 days of December by Amspec and Intertek (independent cargo surveyors) were 544,059t/572,689t (+0.02%/+0.2% MoM) respectively. PO output appears to have started its seasonal MoM decline and this downtrend will likely continue till Feb 2022. Declining output in Dec coupled with flattish MoM exports (assuming it is sustained till month end) suggests that MPOB’s stockpile will likely end the year at below 1.82mt (ie in tight supply).

Upside risk to our 2022’s CPO ASP of MYR3,200/t

1M FCPO price is now at a price premium to 1M US SBO (USD39/t). But against Argentina’s SBO CIF price in Rotterdam, it is at a discount of USD191/t (see Figs.7-12) due to a lack of supply in South America (SA)
before the fresh soybean harvest enters the market in Mar-Apr 2022. Given no new major supplies from SA till then and palm oil producing regions entering low productivity months as well, CPO price is likely to
stay lofty till 1Q22. While the market is anticipating a more normalized supply scenario especially in 2H22, the assumption is fraught with challenges and uncertainties. Weather risk with recent confirmation of a
La Nina is an immediate threat to SA crop seasons while PO harvesting in MY and ID may be hampered by wet weather. In addition, the recent spike in fertilizer prices may cause some growers to delay or cut usage (ie resulting in lower potential yields) despite good CPO prices. Logistical challenges in securing sufficient fertilizer (even if growers are willing to pay the high prices), the lack of fertilizer applied in recent years (especially among smallholders in MY and ID in 2018-19), and labour shortages in MY (if not resolved quickly) will also challenge the assumption of a normalized supply in 2H22. There is therefore upside risk to our 2022’s CPO ASP forecast of MYR3,200/t.