The likely MoM drop in-stock level contrasts with historical trends of Malaysia’s November palm oil stock movements 

by ANIS HAZIM / pic by TMR

MALAYSIA’S palm oil stocks levels are likely to fall by 6.2% month-on-month (MoM) but grow 9.9% year-on-year (YoY) to 1.72 million tonnes at the end of November 2021 due to higher export volumes, said CGS-CIMB Securities Sdn Bhd. 

Its analyst Ivy Ng stated the likely MoM drop in-stock level contrasts with historical trends of Malaysia’s November palm oil stock movements which averaged about 4% MoM over the past 10 years. 

“Our forecast palm oil stock level in Malaysia for November of 1.72 million tonnes is 25% below the 10-year historical November average of 2.28 million tonnes,” Ng wrote in a note yesterday. 

According to a CGS-CIMB Securities survey, Malaysia’s crude palm oil (CPO) output probably fell 1.3% MoM but grew 14.2% YoY to 1.7 million tonnes last month. 

Palm oil exports likely grew by 11.9% MoM and 21.7% YoY, based on export statistics by cargo surveyors Intertek Testing Services (13.6% MoM), Societe Generale de Surveillance (13.8% MoM) and Amspec Inspection Malaysia Sdn Bhd (8.2% MoM). 

The analyst estimates a decline to 1.3% MoM in CPO output to 1.7 million tonnes in November, the lowest compared to the 10-year historical trend of an 8.3% MoM decline in output for the month. 

“Our projected CPO output for November of 1.7 million tonnes is 1% higher than the past 10-year average of 1.68 million tonnes for the month. 

“The higher estimated achievement for the November output against historical production for the same month could be due to a shift in cropping pattern leading to a slower MoM drop in production compared to historical trends despite lingering acute labour shortage issues,” she said. 

She expects exports likely to grow 12% MoM and 22% YoY in November to 1.59 million tonnes due to higher exports to India and Europe. 

The estimated palm oil exports volume of 1.59 million tonnes is higher than the historical 10-year average of 1.47 million tonnes in the month. 

“We suspect the higher exports are due to restocking activities by customers arising from low stocks at destination countries,” she stated. 

Ng noted the average CPO price rose 5.7% MoM and 44% YoY to a record high of RM5,341 per tonne last month as the global supply of edible oils remained tight. 

“We project spot CPO prices to stay firm in the range of RM4,500 to RM5,500 per tonne in December. Some Malaysian planters’ financial year of 2022 (FY22F) net profit may be hit by a one-off windfall tax of 33% (Cukai Makmur),” she added. 

The government announced Cukai Makmur will be imposed on the taxable profit of Malaysian companies over RM100 million in 2022. 

The tax is in addition to a higher windfall profit levy for East Malaysian palm oil producers when CPO prices rise above RM4,000 per tonne and additional taxes on foreign source income that are repatriated to Malaysia. 

“This is partly offset by partial relief of the current labour shortage issue. FGV Holdings Bhd is hopeful the first batch of foreign workers 

will arrive at its estates in the first quarter of 2022 (1Q22), pending government approvals,” she added. CGS-CIMB Securities has a ‘Neutral’ call on the commodities sector. 

In a separate note, CSG-CIMB Securities stated the consensus from the 16th Indonesian Palm Oil Conference (IPOC) was for CPO price to decline from the current spot price of RM5,100 per tonne in 2022. 

However, the speakers had different views regarding when prices would drop and by how much. 

“This is broadly in line with our CPO price forecasts of RM4,270/RM3,600/RM3,240 for 2021F/ 2022F/ 2023, ” CGS-CIMB Securities analysts Ng and Nagulan Ravi wrote. 

Speakers at IPOC 2021 were positive on CPO prices for the rest of 2021 but differed regarding when and by how much CPO prices could drop in first half of 2022 (1H22F). 

Most bullish views projected CPO to trade at RM5,000 to RM5,400 per tonne till February 2022 while the bearish camp forecast prices to fall to RM4,300 per tonne. 

“We believe the market prices in a conservative average CPO price forecast of between RM3,000 and RM3,600 per tonne for 2022F,” they wrote.