KUALA LUMPUR (Feb 4): Malaysia’s palm oil stocks likely grew 7.5% month-on-month (m-o-m) to 1.36 million tonnes (at end-January 2021) due to a slower decline in production compared to exports, said CGS-CIMB.

Its analyst Ivy Ng said findings of a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s crude palm oil (CPO) output probably fell 14% m-o-m or 2.1% year-on-year (y-o-y) to 1.15 million tonnes in January 2021.

Meanwhile, palm oil exports likely fell 35% m-o-m and 13% y-o-y, based on export statistics by cargo surveyors Intertek Testing Services (ITS) (-37.2% m-o-m), AmSpec Malaysia (-36.4% m-o-m) and SGS (-32.07%).

Ng estimated that Malaysia’s palm oil inventory had probably grown 7.5% m-o-m but declined 22.5% y-o-y to 1.36 million tonnes at end-January 2021.

“This was a deviation from the historical trend whereby palm oil stocks typically decline in January — at an average of 8% m-o-m over the past 10 years.

“This could be due to a rush to export palm oil in December ahead of the reinstatement of export tax on CPO of 8% in Malaysia on Jan 1, 2021,” said Ng.

Ng also noted that the January palm oil stock level averaged 2.1 million tonnes in the past 10 years.

Ng also thinks the lower production versus historical numbers could be due to a shortage of foreign workers, seasonal factors and heavier-than-usual rainfall (possibly due to the La Nina event) observed in some parts of the country in January.

On exports, she said traders might have front-loaded their CPO exports in December ahead of the reinstatement of export tax on CPO effective Jan 1, 2021.

To note, Malaysia has set the export tax value of CPO at RM292 per tonne in February 2021 versus RM278 per tonne in January 2021.

Meanwhile, Ng projected CPO prices to trade at RM3,000 to RM3,500 per tonne in February in view of a projected low inventory in Malaysia, which will take time to rebuild.

According to Ng, the average CPO price rose 3.5% m-o-m and 24% y-o-y to RM3,748 per tonne in January on concerns over the low inventory level of palm oil.

“We expect palm oil supply to recover in 2Q21 (the second quarter of 2021) as weather conditions normalise. The recent increase in India’s effective import duty on CPO could dampen near-term demand,” said Ng.

Ng maintained her "neutral" call on the sector, with Genting Plantations Bhd, Hap Seng Plantation Holdings Bhd and Ta Ann Holdings Bhd as her picks.