15.08.2019 (The Edge Markets MY) - Plantation sector
Maintain neutral: Malaysian palm oil inventories posted a surprise drop in July, bringing the inventory level to its lowest in a year, boosted by stronger-than-expected export demand, while imports halved from the previous month. Meanwhile, palm oil futures climbed for a sixth day to RM2,208 per tonne, the highest level in almost four months following the positive July performance. For the upcoming quarterly results, we expect another dismal performance from most of the plantation companies as crude palm oil prices have weakened to RM1,977 per tonne (year-on-year [y-o-y]: -16.7%; quarter-on-quarter: -1.3%). We maintain “neutral” on the sector outlook.

Despite production surging the most in over a year, July palm oil inventories shrank 0.8% to 2.39 million tonnes, the lowest in a year as exports saw decent growth. The stock/usage ratio fell from 12.1% to 11.1%.

Exports grew 7.4% month-on-month to 1.48 million tonnes as weaker demand from China (-15.7%), the European Union (-20.9%), the US (-22.5%) was outpaced by Pakistan (+5.7%) and India (+7.6%). Upcoming festive celebrations such as Dussehra and Diwalia between September and November have boosted vegetable oil demand from India. Malaysian palm oil production saw a strong recovery with an increase of 14.5% y-o-y as oil palm trees gradually entered the high production season. Production in Peninsular Malaysia and East Malaysia rose 15.5% and 13.1% respectively.

Palm oil inventories in Indonesia were on the rise, up for the third straight month to 3.55 million tonnes as domestic consumption and exports dropped more than 10% y-o-y. Exports to India continued falling due to unfavourable import duty. — PublicInvest Research, Aug 14