Palm oil falls 1% MoM on lower production, expected to improve in 2022

The production level is expected to recover in the coming months following the return of foreign workers


MALAYSIA’S palm oil inventory edged down slightly by 1% month-on-month (MoM) to 1.82 million metric tonnes (MT) in November 2021 due to lower crude palm oil (CPO) production.

MIDF Research noted that the country’s palm oil exports rose in November due to higher demand from India, the US and European countries.

“Nonetheless, stockpiles rose by 6.1% year-on-year (YoY). The inventory level came in higher than consensus expectations,” MIDF Research report yesterday stated.

MIDF expects palm oil stockpiles to improve slightly and eventually return to the pre-pandemic level at around two million tonnes to three million tonnes in the calendar year of 2022 (CY22).

“We expect the current momentum of CPO price will start to show a significant decline if Malaysia’s palm oil inventory manages to rise above 2.5 million tonnes,” it stated.

India remains Malaysia’s top buyer in November influenced by high restocking activities last month.

“We opine Malaysia’s palm oil will continue to record resilient exports following Indonesia’s higher export levy. We do note that Indonesia’s levy is higher than what is imposed by Malaysia which eventually makes Malaysia’s CPO more attractive,” it said.

MIDF Research foresees healthy export demand from India as Indonesia’s share of palm oil exports to India is circa 70%.

On the lower production level in the month, MIDF noted it is probably due to colder weather and higher rainfall. Malaysia’s palm oil industry recorded a lower production level in November, contracting by 5.3% MoM to 1.63 million MT from 1.73 million MT in October.

MIDF Research expects the production level will improve in the coming months following the return of foreign workers although there’s a possibility of higher production costs (vaccination and quarantine) of bringing them.

“We can see a significant recovery in production starting in the second quarter of 2022 (2Q22),” MIDF affirmed.

The average CPO spot price increased by 4.7% MoM to RM5,331 per MT from RM5,094 per MT in October.

On a YoY basis, the average CPO spot price has jumped by 55% from RM3,440 per MT in November 2020.

MIDF Research anticipates CPO price will remain favourable in CY22 with demand remaining resilient given higher consumption locally and globally.

“We are concerned about the possibility of Malaysia’s palm oil experiencing lower demand from its key buyers due to lower price of soy oil, higher production cost of bringing in the foreign workers and higher price of fertilisers,” it further said.

MIDF Research maintained its “positive” stance on the plantation sector with 2022’s CPO average price forecast at RM3,300 per MT.

CGS-CIMB Research’s analyst Ivy Ng stated that palm oil stocks in November were 6% above the broker’s 1.72 million tonnes forecast.

“The higher inventory was due to lower exports and higher imports. The stock level is tight as it is 20% below the historical 10-year average November stock level of2.28 million tonnes,” stated Ng.

She added CPO output fell 5% MoM but rose 10% YoY to 1.64 million tonnes in the month.

According to the analyst, the MoM fall is broadly lower than its historical 10-year average of an 8% decline in November output.

“The November output is below the past 10-year average of 1.68 million tonnes for the month of November due possibly to foreign workers shortage.

“For the 11 months of 2021 (11M21), output fell 6% YoY to 16.7 million tonnes which are in line with expectations.

“This makes up 93% of our 2021F CPO production forecast of 18.6 million tonnes or 6% YoY.

“We expect the labour shortage problem to only be partially alleviated in the first half of 2022 as the government gradually relaxes the intake of foreign workers,” she stated.

She added the higher palm oil exports last month were likely due to restocking activities.

However, 11M21’s palm oil exports fell 10% YoY to 14.1 million tonnes due to weaker exports to China, European countries, Pakistan and the US.

“We project palm oil stocks to decline by 7.1% MoM to 1.69 million tonnes by end of December 2021F, with output falling 5% MoM and exports rising 2% MoM,” she said.

She projects CPO prices will remain firm at RM4,000 to RM5,000 per tonne in December amid tight near-term global edible oil and palm oil inventories.

CGS-CIMB Research maintained its CPO price forecasts of RM4,270/RM3,600/RM3,240 per tonne for 2021F/2022F/2023F.

“We are of the view that CPO price could remain high till 1Q22F before trending lower when palm oil supply recovers and crushing activities of oilseeds improve,” she added.