Benefiting from weather risk in SA & ID’s export rule
MPOB’s Jan 2022 stockpile of 1.55mt (-4% MoM, +17% YoY) came in marginally below estimates surveyed by Bloomberg (1.58mt). Seasonal decline in Jan output has kept stockpile in tight supply. CPO ASP in Jan
2022 hit new high at MYR5,355/t, in part due to weaker-than-expected South America crop outlook. CPO ASP is likely to stay lofty in 1Q22 on tight supply of vegetable oils globally. Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.
Tight supply lingers on; rewarded by high CPO ASP
The lower MoM stockpile was largely due to a seasonal dip in CPO output (1.25mt; -14% MoM, +11% YoY) and lower imports (0.07mt; -31% MoM, – 58% YoY) which more than offset weaker exports (1.16mt; -19% MoM, +22% YoY) and domestic consumption (0.23mt; -31% MoM, -21% YoY) – Fig.1. The heavy rainfall recorded the past 2 months appeared to have relatively muted impact on overall production in Jan. Meanwhile on demand, exports were generally lower MoM to all key export markets except Turkey, Vietnam, Philippines, and Bangladesh (Fig.2). The lower MoM output and exports were compensated by higher CPO and PK ASPs which averaged MYR5,355/t (+6% MoM +43% YoY) and MYR4,423/t (+11%
MoM, +73% YoY) respectively in Jan.
A commendable start to prelim. exports in early Feb
The preliminary MY export estimates for shipments in the first 10 days of Feb 2022 by Amspec and Intertek (independent cargo surveyors) were 320,508t/318,078t (-5%/+0.5% MoM) respectively. The export numbers were pretty commendable considering the long Chinese New Year public holidays on 1-2 Feb. With ID’s new export policy (and export permit) that came into effect on 28 Jan, MY’s exporters are likely to temporarily benefit from it. Overall, we expect Feb’s exports figures to be encouraging despite (1) present record palm oil prices, and (2) lesser working days in Feb (vs Jan).
USDA cuts South American (SA) crop forecasts
Yesterday, USDA joined the industry in further cutting its estimates for SA crop, following the drought that hit the southern part of Brazil (the world’s largest soybean producing country) and Argentina (3rd largest
after the USA). USDA reduced Brazil’s harvest of soybeans by 5mt to 134mt for 2021/22 (2020/21: 138mt) in its latest monthly WASDE report. It also cut Argentina’s soybean forecast by 1.5mt to 45mt for 2021/22
(2020/21: 46.2mt). Over in this region, ID’s new export policy (effective 28 Jan) which required exporters to allocate 20% of their shipments for domestic market obligation raises concern over lesser availability of
palm oil supply in the export market. And in Malaysia, labour shortage is worsening by the day especially in Peninsular Malaysia and Sarawak. Foreign workers rehiring dateline has been pushed back by several
months. The above factors have been lending good support to CPO prices in recent weeks.