Regional Plantation: CPO stockpiles remained on a downtrend in Jan 24
- Palm oil price improved by 4% m-o-m in Jan 24
- Room for further improvement ahead on rising sunflower oil price
- Indonesia posted record-high biodiesel production in 2023
- WIL, FR, BAL, and LSIP are our top BUYs, and all eyes now on 4Q23 earnings announcement
Palm oil price started to trend higher y-o-y in Jan 24.
The palm oil price benchmark averaged US$823 per MT (+4.3% y-o-y, -8.9% m-o-m), followed by Indonesia’s domestic palm oil price of Rp11,700/kg (+2% y-o-y, +4% m-o-m) in Jan 24. The improving palm oil price was driven by the stable crude oil and soybean oil price trend, as well as recovering sunflower oil prices.
Room for price improvement ahead.
We see room for the palm price to improve further going ahead. The current soybean oil premium to CPO is US$200 per MT and sunflower oil is trading at a US$80 per MT premium to CPO. Indonesia produced 13m KL of biodiesel (+2.3% y-o-y) in 2023 and is set to maintain production at above 10m KL in 2024 due to the competitive price of CPO vs. gasoil.
Malaysia inventory trended down to 2.0m MT in Jan 24.
Malaysia’s inventory reached 2.0m MT in Jan 24 (-11% y-o-y, -11.8% m-o-m) on the back of good export volume of 1.35m MT (+18.9% y-o-y, -8.0% m-o-m). Meanwhile, production volume dropped 9.6% m-o-m to 1.4m MT (+2% y-o-y) on the seasonal factor. The falling inventory level in Malaysia, which is encouraging, indicates palm oil supply and demand are healthy as demand gradually recovers y-o-y.
Earnings season under the spotlight.
Wilmar will report its 4Q23 earnings on 21 February and all eyes will be on how it can weather the bumpy China economy. Meanwhile, we believe BAL (FY23 earnings : 27 Feb) will perform well, as it already exceeded our earnings forecast previously. We like FR (FY23 earnings : 29 Feb) due to its strong ROE and profitability trend and the recent land acquisition, which adds to its land bank for future expansion. Meanwhile, we like LSIP due to its undemanding valuation and net cash balance sheet.
