MPOB Sep 22: Inventory Nearly Hits Three-Year High On Higher Imports From Indonesia
Malaysian palm oil inventory nearly hit a three-year high mainly due to higher imports from Indonesia. There was strong export growth in Sep 22 as expected, thanks to higher import margins in China and wider PO-SBO price spreads. However, India’s exports came in lower mom in Sep 22 due to competition from Indonesia. We expect CPO prices to be supported at the current level as we believe that the recent price hike has factored in the normalising inventory. Maintain MARKET WEIGHT.
• Data beat expectations. The latest data released by Malaysian Palm Oil Board (MPOB) for Sep 22 came in above market expectations, with end-stocks climbing 10.5% mom to nearly a three-year high since Oct 19. This came in above market expectations of of 2.26m-2.27m tonnes for Sep 22 Malaysia palm oil inventory, mainly driven by strong imports. We had observed three consecutive months of strong Malaysia palm oil imports (since Jul 22) which coincided with the Indonesian government relaxing its domestic market obligation ratio and its “flush-out” programme since Jun 22 to prevent further inventory build-up during the production peak season in 3Q22.
• Strong export growth in Sep 22, as expected. The strongest exports growth mainly came from China (+108.5% mom) given the positive import margins and huge palm oil-soybean oil (PO-SBO) price spread. Having said that, imports from India dropped by 21% mom in Sep 22, as India purchased refined palm oil directly from Indonesian players who had more attractive prices.
• Maintain MARKET WEIGHT. We expect CPO prices to remain at the current level in the near term. We reckon that the recent hike in CPO prices may have factored in the normalising inventory (especially in Indonesia). Based on GAPKI’s announcement, Indonesian palm oil inventory is also normalising at 4.04m tonnes (as of Aug 22).
• No near-term catalysts for plantation share price performance with the exception of IOI Corporation (IOI MK/BUY/Target: RM5.15) and Hap Seng Plantations (HAPL MK/BUY/Target: RM2.80). We expect their financial performance to outperform peers’, which will support their share price performances.