Stocks preview and Indonesia export ban
? Malaysia’s palm oil stocks likely grew by 12.6% mom to 1.66m tonnes at endApr 2022 due to lower exports.
? Indonesia’s decision to impose a temporary palm oil export ban resulted in a
10% rise in spot CPO prices in Malaysia to RM7,469/tonne on 5 May.
? We expect Malaysian planters to post better yoy, but flattish to lower qoq,
earnings in 1Q22F.
Palm oil inventory likely grew by 12.6% mom in Apr 2022
Findings from a survey of planters by the CGS-CIMB Futures team revealed that Malaysia’s
CPO output likely grew by 2.9% mom (but down 5% yoy) to 1.45m tonnes in Apr 2022.
Meanwhile, palm oil exports likely fell 15% mom and 20.4% yoy to 1.08m tonnes, based
on export statistics by cargo surveyors Intertek (-16% mom) and Amspec Malaysia (-14%
mom). The lower exports could be due to higher palm oil shipments from Indonesia after it
abolished the Domestic Market Obligation (DMO) ruling on 20 Mar 2022. The DMO had
required exporters to sell 30% of their planned exports to the domestic market. We estimate
that Malaysia’s palm oil inventory probably grew by 12.6% mom and 7.3% yoy to 1.66m
tonnes at end-Apr 2022. The likely mom rise in stock level is greater compared to historical
trends in Malaysia’s Apr palm oil stock movements (average: +2% mom over the past 10
years). Our Apr 2022F forecast palm oil stock level in Malaysia of 1.66m tonnes is 15%
below the 10-year historical Apr average of 1.96m tonnes, suggesting supplies remain tight
at end-Apr. Official figures will be released on 10 May (Tuesday).
Indonesia could review its temporary export ban in May
Spot CPO price in Malaysia rose by 10% from RM6,775 per tonne on 22 Apr (when
Indonesia’s president announced plans to temporarily ban palm oil exports effective 28
Apr) to RM7,469 per tonne on 5 May. The higher price is due to the shift in demand for
Malaysia palm oil following news of the temporary export ban in Indonesia of key palm oil
products – namely CPO, RBD palm oil, RBD Palm Olein – starting 28 Apr. It is unclear how
long this ban will last. Indonesia’s coordinating economic minister Airlangga said the ban
will remain in place until prices of bulk cooking oil drops to Rp14,000/litre. However,
Indonesia’s trade ministry data show that the national average price of subsidised bulk
cooking oil had fallen to only Rp17,200/litre on Wednesday, a decline of just 1.15% over
the course of the week since the export ban was imposed on 28 Apr. We are of the view
that the export ban on palm oil may last for only a month due to the potential storage and
logistic issues in Indonesia as fresh fruit bunches (FFB) harvested from the estates cannot
be stored. In 2021, Indonesia exported 64% of its palm oil products. A prolonged ban on
Indonesia palm oil could lead to demand destruction caused by higher palm oil prices, as
well as insufficient supply of palm oil in the global market. Another key event to watch is
the speed at which foreign workers are recruited by Malaysian palm oil producers post the
Hari Raya holidays – a move that will help raise productivity in Malaysian estates.
Higher CPO price expected to boost 1Q22F earnings of planters
We expect Malaysian plantation companies to post better yoy, but flattish to lower qoq,
earnings in 1Q22F. The better yoy earnings will be driven by the 55% rise in average CPO
prices and 4% rise in CPO output. On a qoq basis, the 20% qoq rise in CPO price to
RM6,051/tonne could be offset by lower production (-20% qoq) and higher windfall tax.
Reiterate sector Neutral and KLK, GENP and HAPL as top picks.