- CPO stockpile remained low in January 2022
- Severe weather in South America may hurt soybean harvest
- Bad weather still affects palm oil production in Malaysia and Indonesia
- Maintain BUY on BAL, FR, LSIP, and WIL
Malaysian palm oil inventory remained at around 1.5m MT (+17% y-o-y, -2% q-o-q) in Jan 2022. Output dropped by 14% m-o-m to 1.25m MT (+11% y-o-y), despite the export trend being 20% lower m-o-m, at 1.1m MT (+22% y-o-y). Production likely to be subdued by wet weather in 1Q22.
Indonesia’s production outlook subdued by weather. Astra Agro (AALI) and Lonsum (LSIP) hinted that Indonesian CPO production will be hit by severe rainfall in in 1H22. According to Reuters, GAPKI forecasts 2022 CPO output to be 48m tonnes, vs. our forecast of 52m tonnes. We compiled the takeaways from both companies here: AALI,LSIP.
Oil World reported severe soybean crop losses in South America. Heavy rainfall in the past four to six weeks may harm soybean crops and support soybean oil prices and palm oil prices. We see that the soybean oil price will correlate with the crop shortage and provide headroom for the palm oil price to stay elevated at the current US$1,300 per MT level, despite the narrowing spread of the soybean oil price.
Short-term logistics glitch from Indonesia’s CPO domestic market obligation (DMO). We observe domestic logistics congestion due to the implementation of the CPO’s DMO since the government requires exporters to serve the domestic markets rather than exports. We do not see any material impact to the earnings performance for now.
Positive earnings momentum for LSIP, BAL, FR, and WIL. The upcoming FY21 earnings reporting will be the key thing to follow this month, and we expect palm oil companies to finish strong in 2021. The currently strong vegetable oil prices are likely to remain supportive for FR, BAL, and LSIP; meanwhile, the supportive cooking oil refining and soybean crushing margins bode well for WIL’s 2022 earnings outlook.