India’s Demand To Recover
India’s palm oil demand is expected to pick up in upcoming months with the current soft CPO prices and festive seasons approaching. India’s vegoil demand is back to preCOVID-19 levels with the HORECA segments’ operations back to normal. If CPO prices continue to weaken, the Indian government may revisit CPO imports duty. Maintain MARKET WEIGHT. We prefer Malaysian plantation companies which benefit from higher than regional peers CPO prices and higher sales volume in 2H22.
• We met Ms Bhavna Shah from the Malaysia Palm Oil Council (MPOC) last Friday and these are some of the highlights during the session:
• Better demand on the back of soft CPO prices and festive season. With the huge market volatility, destination countries had been very cautious when it comes to purchasing their raw materials. Having said that, India’s demand for palm oil is expected to pick up in the upcoming months with the current soft CPO prices and festive season approaching. Ms Bhava mentioned that India’s vegoil demand is back to pre-COVID-19 levels with the hotel, restaurant and café (HORECA) segments’ operations back to normal. With this, the market share of palm oil to India’s total vegoil imports is expected to increase.
• Import duty revision? The Indian government might revisit imports duty if CPO prices continue to weaken. With inflation and the market environment, the Indian government was also under pressure and hence there were frequent import duty changes in India and stocks control. We had observed that the Indian government had shifted its policy focus from consumers to farmers.
• NMEO-OP – Not a threat, but an opportunity. National Mission on Edible Oils – Oil Palm (NMEO-OP) has been launched by the Indian government with the aim to be more selfreliant on edible oils. This is an opportunity for Malaysia where Indian oil palm farmers need Malaysian oil palm seedlings and the know-how technical transfer to India. The MPOC had signed a memorandum of understanding with the Indian Vegetable oil Production Association (IVPA) which covers various areas of cooperation, including: a) educating Indian consumers on the nutritional and healthy benefits of palm oil, b) exchanging palm oils and fats-related business and technical knowledge through its research bodies, and c) assisting Indian palm oil in sourcing technical know-how.
• CPO prices likely to stabilise at current range after falling 44% from its recent peak in June. We reckon that CPO prices would remain soft in the near term with more exports coming from Indonesia to curb its current high inventory. Having said that, we think that CPO prices would still remain supported until year-end on the back of demand recovery and potentially weaker-than-expected production due to current high crops losses in Indonesia and Malaysia.
• Top picks: IOI Corporation (IOI MK/BUY/Target: RM5.15), Hap Seng Plantations (HAPL MK/BUY/Target:RM2.80) and Triputra Agro (TAPG IJ/BUY/Target:Rp1,125).