We expect CPO price volatility to persist in 2Q22
March stockpile unexpectedly fell 3% MoM to 1.47mt (+2% YoY), below
street estimates of 1.53mt. Short term CPO price volatility will continue
to be dictated by (a) US farmers’ planting progress this spring crop, (b)
weather development, and (c) Russia-Ukraine conflict. But in 2H22, when
CPO supply recovers seasonally (aided in part by an influx of foreign
workers in Malaysia’s case), we expect CPO prices to trend lower HoH. Our
NEUTRAL sector view is unchanged. Against a backdrop of significantly
heightened share price volatility within the sector, our preferred
exposures remain with KLK, TAH and BAL.
MPOB’s March stockpile at 12-month low
March’s MPOB stockpile bucked seasonal uptrend despite higher palm oil
output (1.41mt; +24% MoM, -1% YoY). This was attributed to better-thanexpected exports (1.27mt; +14% MoM, +6% YoY), strong domestic
consumption (0.28mt; +31% MoM, +18% YoY) and lower-than-expected
imports (0.085mt; -43% MoM, -38% YoY) – Fig.1. On exports, higher MoM
exports were recorded to all key destinations except Vietnam (-11% MoM,
-11% YoY), Turkey (flat MoM -24% YoY), and Others (-10% MoM, -2% YoY) –
Fig.2. For March, CPO ASP achieved a new monthly high at MYR6,867/t
(+16% MoM +70% YoY). As for PK, a by-product, ASP came off MoM from
Feb’s record high monthly ASP to MYR4,699/t (-3% MoM, +82% YoY) in
March, but still significantly higher compared to a year ago.
Weak prelim. export estimates for April so far
The preliminary MY export estimates for shipments in the first 10 days of
April 2022 by Amspec and Intertek (independent cargo surveyors) were
271,201t/278,621t (-27%/-26% MoM) respectively. The export estimates
were surprisingly weak. Perhaps this was in part due to the lifting of export
restrictions by Indonesia on 18 March, allowing Indonesia to regain some
of the market share lost in the months of February and March. However,
we caution that it is still early days to conclude if this weak export trend
will persist for the rest of April.
ST CPO price to take cue from competing oils
At present, the downside risk to CPO price is buffered by the strength of
competing oils prices (supported by present tightness in available global
supplies) as CPO price is now trading at decent discounts to competing oils
(Figs.7-12). Short term CPO price volatility will continue to be dictated by
(a) US farmers’ planting progress of oilseeds (and grains) from April to
June; (b) weather development in key growing regions throughout the
world. The present La Nina is forecasted to end by mid-year, leading to
expectation of a more normalized weather condition for this Northern
Hemisphere spring crop, which may in turn yield bigger crops; and (c)
Russia-Ukraine conflict. A quick resolution to the Russia-Ukraine conflict
before end-May may (i) allow Ukraine farmers to catch up on new
sunflower planting, and (ii) allow the exports of sunflower seeds/ oils
(from the last harvest) to resume in the Black Sea region. Our current base
case assumption is a truce to the Russia-Ukraine conflict before the end
of the spring planting season for sunflower.