Malaysia’s palm oil output to improve fuelled by foreign labour intake

MIDF Research expects palm oil production to improve further subsequent to positive development of foreign labour intake particularly from Indonesia.

The research house said overall, Malaysia’s crude palm oil (CPO) production surged to 1.73 million tonnes versus 1.71 million tonnes in the previous year.

This is owing to the better contribution from most of the states except for Perak, Kelantan, Selangor and Terengganu.

“On a year-on-year (YoY) basis, Malaysia’s oil extraction rate (OER) dropped to 19.67 per cent from 19.86 per cent impacted by low intake of foreign labour.

“We expect production to improve further subsequent to positive development of foreign labour intake,” it said.

Meanwhile, MIDF Research said palm oil export volume gained in August, rose by 11.3 per cent yoy and  per cent 1.8 per cent year to date (ytd) despite slower on month-on-month basis to 1.30 million tonnes.

“Furthermore, intake from middle east countries such as Iran , Saudi Arabia and Turkey declined in the month following positive development in sunflower oil on reopening of Black Seaport in Ukraine.

“We anticipate the Malaysian palm oil stockpiles to improve in the third quarter (Q3) and Q4 2022 supported by more boots on the ground that began last month,” it said.

MIDF Research expects CPO price to be trading sideways in the remaining month at RM3,500-RM4,000 per tonne benefitting from the price disparity between CPO against SBO prices which is now around US$477 in July.

However, the firm also recognised its downside risk on fragile demand outlook on the back of inflationary pressure coupled with tight household spending on high base interest rate locally and globally Indonesia’s extended zero-levy policy for palm oil exports.

“All factors considered, we still maintain our CPO price of ‘positive’ stance on the sector with CPO target price of RM5,500 per mt for calendar year 2022 (CY22) but with a ‘neutral’ bias towards CY23.

“Our top picks for plantation companies are Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd and Genting Plantation Bhd,” it added.

Tags: Malaysia, palm oil