Palm oil inventory lowest in 28 months


MALAYSIA’S palm oil inventory fell to two million tonnes in December last year, the lowest in 28 months, according to the Malaysian Palm Oil Board (MPOB).

In a monthly data released last Friday, MPOB stated the inventory in December fell 11% from November’s stocks of 2.26 million tonnes.

The volume is also a steep drop from the stock volume 3.2 million tonnes in December 2018.

MPOB said the country’s CPO production for December dropped by 13.27% to 1.3 million tonnes from 1.5 million tonnes in November.

The output of palm kernel oil fell 12.8% to 316,239 tonnes last month from 362,641 tonnes in November.

The lower production last month was offset by the surge in imports by 64.7% to 123,029 tonnes from 74,684 tonnes in November.

Palm oil exports in December, which comprised of CPO and processed palm oil excluding other palm-based products such as biodiesel and oleochemicals, was flat at 1.4 million tonnes, totalling the palm oil export revenue to RM3.6 billion.

Biodiesel exports in December stood at 44,904 tonnes — the highest since March 2019 and slightly higher than its volume in November at 44,153 tonnes.

For 2019, the export revenue from palm oil and palm oil-based products reached RM63.69 billion, 2.6% lower from the export revenue in 2018 of RM65.4 billion. Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa said palm oil’s performance at the end of 2019 surpassed expectations.

“The overall data is seen as bullish confirming weakness in production against strong exports even before the implementation of biodiesel plans by Malaysia.

“Palm oil stocks fell much deeper than expected after production declined by 13.27% at the high end of market estimate. The market was pricing in between 8% and a 9% decline in stocks,” he told The Malaysian Reserve.

Sathia said the surge in export volumes to Mozambique, Turkey and Egypt in December has offset the lower volume from Malaysia’s top palm oil buyers — India, China and the European Union (EU).

“Exports eased by just by 0.67% against the average forecast of minus 5.86% as shipments to Turkey, Egypt and Mozambique offset the fall in exports to China, India and the EU,” he said.

However, the exports to India, China and the EU for the whole of last year increased by 75.4%, 33.9% and 9.5% year-on-year to 4.41 million tonnes, 2.5 million tonnes and two million tonnes respectively.

In a research report, Hong Leong Investment Bank Bhd expects CPO prices to remain high at above RM2,500 per tonne in 2020 and 2021.

“The CPO price is expected to remain considerably high, albeit not as high as the current level as it is unlikely for CPO price to sustain at the current level over the long term due to demand rationing in some major palm oil importing countries.

“We believe CPO price to chart at above RM2,500 per tonne supported by the Indonesian government’s launch of B30 biodiesel, the imminent palm output deficit from the drought and cutback in fertilisers as well as the African Swine Flu, which has yet to show signs of abating,” it said.

The research house maintains a ‘Overweight’ stance for FGV Holdings Bhd (target price [TP]: RM1.72), Genting Plantations Bhd (TP: RM12.82) and Hap Seng Plantations Holdings Bhd (TP: RM2.29).