Palm oil stocks preview for Dec 2021F

■ Malaysia’s palm oil stocks likely fell by 3.6% mom to 1.75m tonnes at end Dec 2021F due to lower output.
■ A survey by CGS-CIMB Futures revealed that Dec 2021 output probably fell 8.1% mom, while export volume likely fell by a lower rate of 5.7% mom.
■ The tight supplies and low production season for palm oil in 1Q22F are likely to keep CPO prices supported. Reiterate sector Neutral call.

Palm oil inventory likely fell by 3.6% mom in Dec 2021F

Findings from a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s CPO output probably fell 8.1% mom, but grew 12.7% yoy, to 1.5m tonnes in Dec 2021. Meanwhile, palm oil exports likely fell 5.7% mom and 14.9% yoy, based on export statistics by cargo surveyors Intertek Testing Services (ITS, -5.25% mom), SGS (- 6.9% mom) and Amspec Malaysia (-5.1% mom). We estimate that Malaysia’s palm oil inventory probably fell 3.6% mom, but grew 38.5% yoy, to 1.75m tonnes at end-Dec 2021F. The likely mom drop in stock level is in line with historical trends of Malaysia’s Dec palm oil stock movements (average: -4% mom over the past 10 years). Our forecast palm oil stock level in Malaysia for Dec 2021F of 1.75m tonnes is 25% below the 10-year historical Dec average of 2.28m tonnes. Official figures will be released on 10 Jan (Mon).

Projected weaker output in Dec due to flooding and labour issue

Our estimate of an 8.1% mom decline in CPO output to 1.5m tonnes in Dec 2021F is lower compared with the 10-year historical Dec trend of a 10.5% mom decline in output. However, our projected CPO output for Dec of 1.5m tonnes is slightly lower when compared against the 10-year average of 1.51m tonnes for the month of Dec. The lower estimated achievement for the Dec month output against historical production for the same month could be due to flooding in some estates due to heavier than usual rainfall in last two weeks of Dec and the labour shortage situation.

Exports likely fell 6% mom due to lower exports to India and China

We estimate palm oil exports fell 6% mom and 15% yoy in Dec 2021F to 1.38m tonnes, likely due to lower exports to India and China. The estimated palm oil exports volume for Dec 2021 of 1.38m tonnes is lower than the historical 10-year average of 1.48m tonnes for the Dec month. We suspect the weaker exports are due to demand rationing by price-sensitive consumers and tight supplies.

2021 record CPO price RM4,407/tonne was 3% above expectation

Average CPO price fell 5% mom but rose 40% yoy to RM5,070/tonne in Dec 2021 as global supply of edible oils remained tight. In 2021, the CPO price rose 64% to average RM4,407 per tonne (a new record high). This is 3% higher than our projection of RM4,270 per tonne due to weaker-than-expected supply. We project spot CPO prices to stay firm in the range of RM4,500-5,500/tonne in Jan 2022F as palm oil supplies are likely to stay tight in the near term, given that 1Q is typically the low production season for palm oil, Malaysia is currently experiencing heavier-than-usual rainfall in some of the palm oil regions, and the current labour shortage issue remains unresolved. We project CPO prices to average RM3,600 per tonne in 2022F and RM3,240 per tonne for 2023F. We keep to our sector Neutral call as concerns over ESG are partly offset by strong earnings and the undemanding valuations of the sector vs. historical averages.