Strong CPO exports seen continuing

Tax exemption extension, Raya festive period to drive demand

PETALING JAYA: Malaysia’s crude palm oil (CPO) exports are expected to remain strong this month, following a strong performance in March, according to analysts.

UOB Kay Hian Malaysia Research said in a report that the Plantation Industries and Commodities Ministry’s (MPIC) decision to extend CPO export tax exemption could further support exports.

The research house also added that imports from the Middle East and several African countries were likely to increase this month and in May, mainly as a result of Hari Raya Puasa, which falls in June.

“According to cargo surveyor AmSpec Agri, exports increased 25.6% month-on-month (m-o-m) to 449,997 tonnes in April 1 to 10.

“CPO demand is expected to increase in the coming months, especially from the Middle East and some African countries. Historically, exports to the Middle East and African countries increased gradually three to five months before the Hari Raya season,” it said.

UOB Kay Hian Malaysia Research has maintained an “underweight” view on domestic plantation stocks, largely underpinned by the expectation of a significant CPO price weakness as palm oil will likely see oversupply by mid-2018.

In March 2018, the country’s CPO exports increased significantly by 19.2% m-o-m to 1.57 million tonnes. On a year-on-year basis, CPO exports improved by 23.7% in March.

Last Friday, the MPIC announced that the CPO export duty exemption would be extended until end-April or when local palm oil inventories fall below 1.6 million tonnes, whichever comes first.

Meanwhile, MIDF Research projects CPO exports to improve by 5% m-o-m this month, as the demand for palm oil will remain strong due to pre-stocking activity ahead of

Ramadan.

As a result, the research house foresees CPO inventory this month to decline 8% m-o-m to 2.13 million tonnes.

On CPO price, MIDF Research has lowered its average CPO price assumption to RM2,600 per tonne, as the US dollar-ringgit exchange rate has weakened by about 9% to RM3.86 as of April 10.

“Lower US dollar-ringgit rate usually leads to lower CPO price as it reduces the price competitiveness of CPO against other vegetable oils. This is especially true for the soybean oil which is quoted in US dollar.

“Coupled with higher than expected inventory of palm oil due to stronger than expected production in the fourth quarter of 2017, we have revised our 2018 CPO price assumption to RM2,600 per tonne,” it said.

MIDF Research has reiterated its positive outlook on the plantation industry.