Palm exports to be weaker during winter months

We believe that this is the peak for the year. We expect CPO production to soften in November and December in line with seasonal output trends.

AmInvestment

KUCHING: Malaysia’s palm exports are expected to be weak during the winter months while crude palm oil (CPO) production is expected to soften in November and December in line with seasonal output trends.

In a report, the research team at AmInvestment Bank Bhd (AmInvestment) saw that Malaysia’s CPO production rose by 1.3 per cent month-on-month (m-o-m) to 1.73 million tonnes in October.

“We believe that this is the peak for the year. We expect CPO production to soften in November and December in line with seasonal output trends. The small production growth in October was led by a 2.7 per cent increase in Sabah and 1.2 per cent rise in Sarawak.

“In Peninsular Malaysia, CPO output inched up by 0.7 per cent m-o-m to 915,565 tonnes in October,” it said.

Comparing 10M21 against 10M20, it noted that Malaysia’s CPO production fell by 7.9 per cent to 15.0 million tonnes.

“We think that Malaysia’s CPO production would reach about 18 million tonnes in 2021E compared with 19.1 million tonnes in 2020 dragged by a shortage of estate workers and wet weather in 1Q21,” it added.

As for demand, AmInvestment believed that Malaysia’s palm exports would remain weak in November and December 2021 as China and India have ample reserves.

“India’s inventory of edible oils at the ports and pipelines stood at 2.0 million tonnes as at October 1 compared with 1.75 million tonnes as at September 1. China’s palm imports may soften going forward as the winter season sets in,” it added.

On the other hand, the research team at Hong Leong Investment Bank Bhd (HLIB Research) pointed out that while the latest set of data is bearish for near-term CPO price sentiment, this will likely be mitigated by seasonally lower palm production cycle.

“Hence, we believe CPO price will still stay lofty in the near term on the back of near-term supply constraints, and increasing likelihood of La Nina episode by November 2021 (which will lend support to vegetable oil prices).

“A more noticeably decline in CPO price will only happen when supplies of vegetable oils (in particular, palm oil and soybean) start showing signs of recovery (possibly by 2Q22),” it said.

As such, it maintained its 2021 to 2023 CPO price assumptions of RM4,250, RM3,500 and RM2,900 per tonne, respectively.

All in, HLIB Research maintained its ‘overweight’ stance on the sector while AmInvestment retained its ‘neutral’ view due to ESG concerns still tailing the industry.