KUALA LUMPUR – Export demand for crude palm oil (CPO) is expected to recover this year on the back of gradual recovery of economic activities in India and China, current low stocks, as well as restocking activities ahead of the Ramadan month, MIDF Research said.
In a research note today, MIDF Research said the CPO export demand saw an improvement in the fourth quarter of the financial year 2020 (4QFY20). However, the volume of export demand started to tone down early this year.
“January 2021 export came off -42.3% month-on-month (m-o-m) to 0.95 million tonnes, while February 2021 export was down by -5.5%.
“The downward trend is attributed to, among others, Malaysia’s reinstatement of export tax (8.0%) on CPO, effective Jan 1, 2021, recovery of China’s hog industry from the African swine fever virus and India’s implementation of higher import duty on CPO by 5.5% to 35.75%,” it said.
Meanwhile, MIDF Research said following Prime Minister Tan Sri Muhyiddin Yassin’s visit to Saudi Arabia recently, Riyadh has committed to increasing its imports of Malaysian palm oil from 318,000 tonnes to 500,000 tonnes.
“The 57% increase in CPO export to Saudi Arabia this year should contribute positively to plantation players’ earnings.
“However, we posit that the impact would not be huge as Saudi Arabia only constitutes 2.0% of Malaysia’s palm oil exports,” the MIDF Research said.
On the production of CPO, the research house expects recovery, albeit below potential, after the second quarter of 2021, given the high reliance on foreign workers.
In the longer term, it expects production to increase significantly as smallholders would be more aggressive in applying fertilisers during periods of high CPO prices and better economic conditions.
“The production level early this year has shown a significant decrease where the January 2021 production level was lower by -15.5% m-o-m to 1.13 million tonnes, while the February 2021 production level dipped by -1.9% m-o-m to 1.11 million tonnes.
“This also represents the weakest monthly level observed since February 2016,” it said.
The lower production was attributed to lower fertiliser application, minimal new planting of oil palm globally over the past few years and weaker fresh fruit bunches (FFB) yields due to the higher frequency of rainfall.
MIDF Research noted that another factor that contributed to the lower volume of production was the continued shortage of foreign labour due to the COVID-19 border closure.
As for FFB yields, it has shown a downward trend since 2017, primarily attributable to the cutback on fertiliser application, mainly by smallholders in the late second half of 2018, drought in 2019, and ageing palm profile.
It revises its 2021 CPO price forecast by 11% to RM3,000 per tonne from RM2,700 per tonne previously.
In line with this, MIDF Research has upgraded the plantation sector to “positive” from “neutral”.
MIDF Research’s top picks for plantation companies include Kuala Lumpur Kepong Bhd (KLK), TSH Resources Bhd, and IJM Plantations Bhd.
At lunch break today, KLK was up 0.26% to RM23.16, TSH slipped 0.93% to RM1.07, and IJM was 2.26% higher at RM1.81. – Bernama, March 24, 2021
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