A mixed report card for 2021

MPOB reported record export revenue of MYR106.5b in 2021 following record PO prices. Here we highlight some key observations: (1) planted area declined for a second consecutive year; (2) CPO yield fell to levels not seen since 1998; (3) PPO imports flooded the MY market; and (4) there were negative trends in downstream utilization rates. The MY government is cognizant of these challenges and is reviewing the relevant policies to ensure MY’s PO exports continue to stay competitive. Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.

2021: Lowest CPO yield in 23 yrs, & shrinking area

In 2021, MY’s CPO yield fell to just 3.1t/ha (-7.1% YoY) while FFB yield was down to 15.47t/ha (-7.5%; Fig.1). In absolute terms, CPO output was down 5.3% YoY to 18.1mt. Besides severe labour shortages, output was impacted by lower mature area at 5.14m ha (-1.7% YoY), the first decline in history (Fig.2). Total planted area declined even more to just 5.74m ha (-2.2% YoY). Both Peninsular Malaysia (-0.13m ha) and Sabah (-0.02m ha) recorded falls. Only Sarawak showed a small expansion (+0.02m ha). The lower output and yields were however more than compensated by record CPO price which averaged MYR4,407/t (+64% YoY) in 2021 (Fig.3). Even the price of PK by-product avg.ed higher at MYR2,773/t (+81% YoY).

MY’s downstream players lost cost competitiveness

MY’s domestic CPO price traded at an average premium of MYR1,033/t to ID’s domestic CPO price in 2021 (Fig.4). The relatively more expensive CPO feedstock cost in MY made it difficult for MY refiners to compete with ID refiners in the export market. This was evident from MY’s lower refinery utilization rate (U.R) which averaged just 57% (-9.2-ppts YoY; Figs.5,6). MY’s refiners even found it cheaper to import PPO to help raise their U.R. MY’s import of PPO rose 94% to 1.1mt (Fig.7) in 2021. Over the years, MY’s PPO export ratio (Figs.6,8) has steadily declined ever since ID introduced different export duties for CPO and PPO in 2011. Interestingly, by our estimate, MY’s average export price of CPO achieved (MYR4,451/t) in 2021 was ironically higher than the average PPO export prices (MYR4,397/t). Even for oleochemicals, the industry’s U.R averaged lower in 2021 at 84.1% (-8.2-ppts YoY; Fig.9).

A review of MY’s export tax structure is underway?

MPOB has projected a CPO average price of MYR3,800/t (-14% YoY) in 2022. This is premised on the following assumptions: (1) a recovery in PO output to 19mt (+4.9% YoY); (2) exports at 17mt (+9.3% YoY); and (3) end-2022 stockpile at 1.95m tons (+23.4% YoY). If we were to assume MY consumption to be flat YoY at 3.42mt, it implies MPOB is forecasting imports to grow by 52% YoY to 1.79mt (Fig.10). Imports of cheaper PPO are again expected to help fuel MY’s export growth in 2022. From a recent industry conference, we understand the MY government is reviewing the present export tax structure. We would not be surprised if the government even temporarily exempts export duties on CPO as a stop gap measure. On MPOB’s forecast of a production recovery in 2022, the recent high fertilizer prices, disrupted fertilizer supplies, labour shortage and the need to replant older palms may pose some challenges.