Maintain neutral: Findings from a survey of 21 plantation areas by the CIMB Futures team reveal that Malaysian crude palm oil (CPO) output likely grew 15% month-on-month (m-o-m) to 1.858 million tonnes in September 2018. Palm oil exports likely rose around 50% m-o-m, based on export statistics released by SGS, ITS and Amspec Malaysia. Overall, we estimate Malaysian palm oil inventory likely rose 0.4% m-o-m to 2.49 million tonnes as at the end of September. The official figures will likely be released on Oct 10.
The projected 15% m-o-m rise in CPO output for September is higher than the historical September average mom increase of 2% over the past 10 years. We attribute the higher-than-historical-average m-o-m rise in output to the lower base effect as August 2018’s production of 1.6 million tonnes is the lowest monthly output in August since 2010, which planters attributed to a shift in cropping patterns. Our survey revealed that estates in Sarawak posted the highest m-o-m production increases, followed by those in Sabah. Peninsular Malaysia estates posted the smallest m-o-m rises in production.
We estimate that Malaysian palm oil exports grew around 50% m-o-m last September, based on estimates from cargo surveyor ITS (51.6% m-o-m), SGS (54.6% m-o-m) and Amspec Malaysia (49.2%) as traders may have deferred purchases on expectations of the zero export tax effective Sept 1.
To recap, palm oil exports fell 26% year-on-year (y-o-y) in August 2018 to 1.1 million tonnes, the lowest monthly palm oil exports in August since 2010.
Average CPO price fell 0.3% m-o-m to RM2,178 per tonne in September 2018 due to concerns over strong palm oil supplies in Indonesia. However, this was partially offset by expectation of stronger biodiesel demand in view of the rising crude oil prices and Indonesia’s proposal to raise biodiesel usage effective Sept 1, 2018.
The flattish palm stockpile for September and rising crude oil prices are supportive of CPO prices in the near term. We project CPO prices to trade within the RM2,100 to RM2,400 per tonne range in October. Key upside/downside risks include higher/lower CPO prices. Our top regional picks are Genting Plantations, Wilmar and First Resources. — CGSCIMB Research, Oct 3