Maintain neutral: Malaysia’s crude palm oil (CPO) production in September rose for the third straight month, up by 1.1% month-on-month (m-o-m) to 1.84 million tonnes, due to higher production in Sabah (+9.6%) and Sarawak (+5.3%), but was partially offset by lower production in Peninsular Malaysia (-4.2%). Production is set to further increase over the next one to two months and peak from October to November, prior to the monsoon season. Overall, CPO production for the nine months of 2019 (9M19) was up by 9.3% year-on-year (y-o-y) to 15.19 million tonnes, underpinned by improving fresh fruit bunch yields and CPO oil extraction rates throughout Malaysia. We expect 2019 CPO production to rebound to 20 million tonnes from 19.5 million tonnes in 2018 (Oil World forecasts for Malaysia’s CPO production in 2019: 20.5 million tonnes; 2020: 20.3 million tonnes).
Palm oil exports in September weakened m-o-m, declining by 18.8% to 1.41 million tonnes. This was largely expected as the drop in exports was partly due to the largest buyer, India, purchasing less of our palm oil products in September, following an increase in tax on refined palm oil from Malaysia to 50% from 45%, which started in the same month. Exports to India, China and the European Union dropped by 43.6%, 25% and 5.2% m-o-m respectively to 310,600 tonnes, 222,500 tonnes and 139,600 tonnes. For 9M19, total exports rose by 15.4% y-o-y to 14.02 million tonnes.
Malaysia’s palm oil inventory in September increased for the first time after six consecutive months of m-o-m declines, up by 207,700 tonnes m-o-m (or +9.3%) to 2.45 million tonnes. The increase in the palm oil inventory level was expected due to slower demand from our top buyers in September, especially from India. Malaysia’s palm oil inventory could potentially rise in the next few months, in our view, as we enter the peak production period, although it is unlikely to reach the record high level of 3.2 million tonnes recorded in December last year. — Affin Hwang Capital, Oct 11