Malaysia: palm oil stocks to rise by 21.4pc end-July, says CGS-CIMB Research

Domestic palm oil stocks are projected to rise by 21.4 per cent month-on-month (MoM) to two million tonnes by end-July 2022, on higher output and lower exports.

“We believe the crude palm oil (CPO) prices could trade in the RM4,000-RM5,000 per tonne range in July 2022 as they face higher-than-usual palm oil export supply from Indonesia after the Indonesian government tweaked its export policies to accommodate higher exports to clear burdensome stocks in the country.

“We project upstream planters in Malaysia posting flat to higher sequential earnings in the second quarter (Q2) of 2022 due to higher CPO prices,” CGS-CIMB Research noted in a report.

However, the research firm said that Malaysia-listed planters with significant exposure to Indonesian estates could see flat to weaker quarter-on-quarter (QoQ) Q2 earnings on lower sales volumes.

“We believe weaker second half (2H) of 2022 CPO prices, coupled with higher operating costs due to the hike in the minimum wage in Malaysia to RM1,500 per month effective May 1, 2022, higher fertiliser costs, and the Cukai Makmur tax, will lead to lower profit margins in 2H 2022 unless productivity improves,” CGS-CIMB Research said.

Malaysia’s palm oil stocks increased nine per cent MoM and three per cent year-on-year (YoY) to a seven-month high of 1.66 million tonnes in June 2022, on higher output and lower exports.

The stock level was 1.2 per cent below CGS-CIMB Research’s forecast of 1.68 million tonnes, 2.9 per cent below Reuters’ poll estimate of 1.71 million tonnes and 3.5 per cent below Bloomberg consensus’ forecast of 1.72 million tonnes.

The palm oil inventory for June 2022 is 11 per cent below the historical 10-year average June stock level of 1.85 million tonnes.

CPO output rose six per cent MoM but fell four per cent YoY to 1.55 million tonnes in June 2022, as there were more working days in June compared to May 2022 (Hari Raya celebrations happened during 2-3 May).

“Palm oil output for the first half (1H) 2022 fell slightly by 1.1 per cent YoY to 8.3m tonnes, well short of our forecast of Malaysia’s CPO production growth of four per cent to 18.9 million tonnes in 2022, due to acute labour shortages,” the research firm noted.

Palm oil exports fell 12 per cent MoM and 16 per cent YoY to 1.2 million tonnes in Jun.

The lower exports were driven mainly by Indonesia’s decision to ease palm oil export restrictions on May 23, 2022, which led to a shift in palm oil demand from Malaysia to Indonesia.

“We project Malaysia’s palm oil exports to trend downwards in July, as Indonesia has reduced its domestic market obligation policy and palm oil producers can now export palm oil at a rate of 7x of their domestic sales, from a previous ratio of 5x,” the firm said.

“We keep our Neutral rating, with planters’ dividend yields of 4.9 per cent could be supportive of their near-term share prices despite the bearish sentiment,” CGS-CIMB Research said.

Tags: exports, Indonesia, prices, Crude palm oil, Malaysia, palm oil, stocks