14.02.2021 (www.nst.com.my) - KUALA LUMPUR: Malaysia's crude palm oil (CPO) inventory rose 4.8 per cent month-on-month (m-o-m) to 1.33 million tonnes in January, more or less within consensus' estimate of 1.29 million tonnes, with significantly lower-than-expected exports.

Analysts expect the stockpile to ease this month after its first recovery seen in four months, while production (which was down for fourth straight month) and exports to recover.

The 1.33 million was above Kenanga Research's estimate of 1.17 million tonnes.

"The deviation came from the significantly lower-than-expected exports of 947,000 tonnes or down 41.7 per cent month-on-month," the firm said in a report on Friday.

The key contributor to the lower exports was a 74 per cent m-o-m decline in demand  from India, which Kenanga Research said was not surprising given that the country was also the main contributor (up 169 per cent m-o-m) to December 2020's one-off demand surge.

The firm expects February production to rise 12.2 per cent m-o-m to 1.26 million tonnes, exports to jump 28.3 per cent to 1.22 million tonnes, while inventory to shrink 4.5 per cent to 1.26 million tonnes.

"With January 2021 production reaching a low of 1.13 million tonnes (fourth consecutive monthly decline and lowest level since February 2016), we now expect a reversal of the production downtrend, forecasting a 12.2 per cent m-o-m increase in February 2021."

Kenanga Research pointed out that production typically recovered after three to four consecutive monthly declines. However, the shorter working month and Chinese New Year holidays could slightly hamper the recovery.

Public Investment Bank Bhd (PublicInvest) said despite the bearish industry data, CPO futures price had jumped by RM54 to close at RM3,626 per tonne on Wednesday.

This was likely due to the release of strong recovery in export figures for the first 10 days of February.

"Nevertheless, we think CPO prices could weaken after March when production starts to pick-up. We maintain our full-year CPO price forecast of RM2,500 per tonne for 2021 and our top picks are Sarawak Plantation Bhd and Ta Ann Holdings Bhd," PublicInvest said.

The firm expects a strong earnings quarter for the sector.

In the fourth quarter of 2020, all plantation players reported stronger production on a yearly basis except IOI Corp Bhd (-4.7 per cent), Kuala Lumpur Kepong Bhd (-0.4 per cent) and Ta Ann (-5.4 per cent).

Nevertheless, PublicInvest believes the impact of weaker production would be offset by the stronger CPO prices. 

CPO price price averaged at RM3,373 per tonne during the quarter, an increase of 35 per cent compared to 4Q2019's RM2,491 per tonne.

The firm said despite the rally in CPO prices, most plantation stock prices remained muted due to market's anticipation that the current high prices were sustainable and could weaken in the near-term.