Plantation sector gets boost from India
Analysts positive after resumption of purchase of local CPO
PETALING JAYA: Analysts are positive on the recent renewed buying interest from India for crude palm oil (CPO) from Malaysia.
Reuters on Tuesday reported that leading Indian importers last week had contracted up to 200,000 tonnes of local CPO to be shipped out in June and July.
The resumption of purchase came after Malaysia signed a deal to buy 100,000 tonnes of Indian rice. It noted that the renewed buying was also due to low edible oil stocks in India and the country’s improved relationship with Malaysia after the latter’s new government took over in March.
According to CGS-CIMB Research, the latest development can be viewed as positive for two reasons.
The reported 200,000 tonnes over two months is significantly higher than the total palm oil volume exported to India of 96,000 tonnes in the first four months this year.
“However, this remained below the average monthly exports volume of palm oil from Malaysia to India of 367,000 tonnes per month in 2019,” the research unit in its latest report.
The other point is that the reduction in Malaysia’s duty rate for CPO to 0% in June from 4.5% in May puts local CPO at a competitive advantage over Indonesia’s CPO, which attracts an export levy of up to US$55 per tonne.
“This is also positive as it could help improve local CPO exports to India and keep palm oil stocks in check in Malaysia during the peak production period in the second half of this year,” added CGS-CIMB Research.
Another important development is the restart of the B20 biodiesel programme by the government.
CSG-CIMB said Malaysia is jumping back on the B20 bandwagon following the recent announcement of the nationwide rollout of the B20 biodiesel programme in September.
This was after its postponement due to a two-month partial lockdown to contain the coronavirus.
After a meeting with petroleum firms on Tuesday, Plantation Industries and Commodities Minister Datuk Mohd Khairuddin Aman Razali had said that the government will restart the nationwide rollout, which is expected to be completed by June 15 next year.
This came slightly over a month after the minister said it will delay the nationwide implementation of plans to raise biodiesel usageinmalaysia.
The new timeline for rollout for Sarawak is Sept 1 instead of April 2 while Sabah on Jan 1, 2021 instead of August 2020. Peninsular Malaysia’s timeline remains unchanged on June 15, 2021.
CGS-CIMB pointed out that “this does not come as a surprise given that the biodiesel programme will help support current CPO prices.
“B20 is unlikely to move the needle on palm oil demand for 2020.
“We are not entirely surprised by this development and the revised timeline will not significantly impact the demand for palm oil in Malaysia,” it added.
In its previous note, the research unit estimated that the rollout of B20 in 2020 will add only 64,000 tonnes of additional biodiesel usage (or 0.3% of forecasted local CPO output), which is not significant.
CGS-CIMB, however, is more concerned if the government chooses to abandon the B20 implementation in 2021. This is given the potential loss in demand which will be more significant at 292,000 tonnes, based on its estimates. Upon full implementation, the B20 in transportation and B7 in industrial sectors are estimated to soak up around 1.3 million tonnes of palm oil per annum, which is about 6.8% of the CPO production.
The good news is that the new government remains committed to the biodiesel plan.
On the other hand, the new government has not indicated whether it will incorporate the more expensive biodiesel versus diesel costs into the retail prices of diesel to consumers or plans to look at alternative options.
CGS-CIMB Research is maintaining a “neutral” call on the plantation sector with its key picks on planters such as Genting Plantations Bhd and Hap Seng Plantations Bhd.
“We like Genting Plantations for its rich land bank and young estates while Hap Seng Plantations’ current implied low enterprise value RM30,000 per ha for its Rspo-certified contiguous estates in Sabah could attract suitors, leading to a share price re-rating in the medium term,” it noted.