KUALA LUMPUR (Dec 3): Malaysia's palm oil inventory was likely to have fallen 2% month-on-month (m-o-m) to 1.54 million tonnes at end-November, the lowest for the month since 2004, due to lower production, said CGS-CIMB Research.
According to a survey by CGS-CIMB Futures team, it revealed that palm oil inventory was likely to have declined by 32% year-on-year (y-o-y) at end-November, according to CGS-CIMB Research analysts Ivy Ng Lee Fang and Nagulan Ravi in a note yesterday.
The survey showed that November crude palm oil (CPO) output probably fell 10.4% m-o-m to 1.55 million tonnes.
"Our survey revealed that Sabah estates posted the highest m-o-m drop in production while Sarawak estates registered the lowest. However, the lower production versus the past 10-year average of 1.73 million tonnes could be due to worker shortage issues caused by the current freeze on foreign worker permits and seasonality factors as well as some disruptions in harvesting and evacuation due to heavier-than-usual rainfall caused by La Nina," said the analysts.
Meanwhile, palm oil exports were likely down 17% m-o-m to 1.38 million tonnes, lower than the average November palm oil exports of 1.49 million tonnes over the past 10 years, noted the analysts.
"We suspect that the weaker exports could be partly due to the rally in CPO prices which has led to rationing of demand by consumers.
"Also, some traders could have held back purchases in anticipation of potential cuts in import duties on CPO by the Indian government. To recap, India cut CPO import duties by 10% to 27.5% effective Nov 27, 2020," they said.
According to the analysts, average CPO price rose 15% m-o-m and 37% y-o-y to RM3,436 per tonne in November on concerns over the low inventory level of palm oil in Malaysia and Indonesia, as well as tightness in supplies of other key competing edible oils.
"We project CPO prices to trade at RM2,800-3,400/tonne in December in view of the projected low inventory in Malaysia, which will take time to rebuild; and higher exports from Malaysia as traders take advantage of lower India import duties on CPO and current zero Malaysia export tax on CPO," they said.
The analysts maintain their "neutral" call for the plantation sector, with Genting Plantations Bhd, Hap Seng Plantations Holdings Bhd and Ta Ann Plantations Bhd as their top picks.
At the time of writing, shares in Genting Plantations had fallen 11 sen or 1.1% to RM9.88, valuing it at RM8.87 billion. Hap Seng was down one sen or 0.55% to RM1.82, bringing its market capitalisation to RM1.46 billion, while Ta Ann rose one sen or 0.32% to RM31.10 with a market value of RM1.37 billion.