Plantation

Neutral

Source: PublicInvest Research

PALM

oil inventories recorded a drop of 10.7% MoM to 1.71 million mt in March compared to the market estimates of 1.76 million mt. It was also the lowest level in 10 months. Consequently, the stock/usage ratio slipped from 11.5% to 8.8% as exports grew at a bigger pace than production.

Palm oil exports jumped 28.6% MoM to 1.31 million mt in March, bolstered by stronger demand from China (+1.4%), India (+42.6%), Middle East (+10.6%) and the US (+178.5%), partially offset by EU (-14.5%). For the first quarter, palm oil exports slipped 1.6% YoY to 3.69 million mt, weighed by slower exports to all the major consuming countries. Despite the strong export data in March, we think it may not be sustainable in the coming months due to the uncompetitive pricing compared to other vegetable oils and low buying interest after the festive period.

CPO production rebounded 10.6% MoM to 1.39 million mt in March, as production from both Peninsular Malaysia and East Malaysia rose 15% and 5.2%, respectively. It is also the monthly gain since Oct 2023. Meanwhile, FFB yield recovered from February’s 1.08mt/ha to 1.17mt/ha as productivity normalised after the long holiday break. We believe production is likely to see continuous recovery in the subsequent months led by higher productivity and easing worker shortage issue.

The Indonesian government is mulling a revision in the Domestic Market Obligation policy for cooking oil by linking it to production instead of exports. It is worth noting that the current ruling allows companies to export some palm oil products after supplying certain volumes of cooking oil domestically.

Top picks are pure planters, namely Sarawak Plantation and Ta Ann.