Low carry forward stockpile into 2022 a boon for spot price

CPO price to stay elevated for now on weather risk

MPOB’s Dec 2021 stockpile at 1.58mt (-13% MoM, +25% YoY) was lower than street’s estimate of 1.7mt, and second lowest for the month of Dec in 15 years. Key surprise was a jump in domestic consumption. CPO price is off to a good start in 2022 due to weather risk in this region as well as South America. High fertilizer prices, disrupted fertilizer supplies and labour shortage in Malaysia may possibly cause palm oil yields to again come in below expectation in 2022. Stay POSITIVE on the sector.

Preferred BUYs are KLK, SOP and BPLANT.

December stockpile surprised on the downside Production has started its seasonal decline since Nov 2021. The trend continued into Dec as output fell further to 1.45m (-11% MoM, +9% YoY). Besides lower output, higher domestic consumption (0.37mt; +31% MoM, +39% YoY) and relatively resilient exports (1.41mt; -3% MoM, -14% YoY) also contributed to lower stockpile in Dec 2021 (Fig.1). By geographical
breakdown, exports were generally lower MoM to all key export markets except the EU, Turkey, USA and others (Fig.2). Overall, for 2021, palm oil output fell 5% YoY to 18.1mt; a sharp contrast to initial anticipation of a strong recovery. Poor output was due to unfavourable weather, lack of fertilizing activities in 2018-19 on low CPO prices, shortage of workers, and disrupted operations due to COVID
infections at selected estates/ mills. In line with lower output, 2021’s exports slowed to 15.6mt (-11% YoY) while domestic consumption was relatively flat (3.42mt). Had it not been for higher imports (+1.2mt; +24% YoY), the Dec 2021 stockpile would have been relatively flattish YoY.

Not so good start to prelim. exports in early Jan

The preliminary MY export estimates for shipments in the first 10 days of Jan 2022 by Amspec and Intertek (independent cargo surveyors) were 318,928t/334,750t (-41%/-42% MoM) respectively. However, it is still early days to suggest the trend will persist into the rest of Jan. Nonetheless, we reckon MY’s export competitiveness to India has been eroded since late Dec 2021 as India cut the basic import tax on refined palm oil (PO) to 12.5% from 17.5% until March 2022, and extended unrestricted import of refined PO until Dec 2022 (from Dec 2021). We view these recent policy changes favour ID’s refiners over MY refiners.

SA oilseeds outlook deteriorated the past few weeks

The weather risk in South America (SA), especially in the southern part of Brazil (the world’s largest soybean producing country) and Argentina (3rd largest after the USA), is slowly being reflected in industry estimates due to unfavourable weather there. AgRural has slashed Brazil’s soybean crop to 133.4mt (from 144.7mt) and AgResource now pegs harvest at 131mt (from 141mt). Meanwhile StoneX sees Brazil’s production at 134mt (from 145mt). If these revised forecasts materialise, Brazil’s output will be lower than last year’s record crop estimated at 138mt. In Argentina, soybean crop ratings have also dived in recent weeks. With dry weather and heat forecast in January, the outlook is also not rosy at this moment. Coupled with heavy rainfall over here disrupting oil palm operations, there is upside risk to our 2022’s CPO ASP forecast of MYR3,200/t.