Malaysian palm oil inventory stood at 2.35 million MT as at 10M19, down from 3.2 million MT in December 2018, largely attributable to higher exports and domestic consumption over production. — AFP photo
KUCHING: Demand for palm-oil has been projected by Affin Hwang Investment Bank Bhd (AffinHwang Capital) to stay healthy while Malaysian palm-oil inventory is set to trend downward.
AffinHwang Capital recapped that Malaysia’s palm-oil exports were higher by 14.1 per cent year on year (y-o-y) to 15.7 million metric tonnes (MT) in the first 10 months of 2019 (10M19).
“This was partly due to the suspension of the export tax on palm oil by the Malaysian government in 2019 and India’s lower import duty rate for palm-oil products from Malaysia as compared to other producing countries, which helped to increase demand for Malaysia palm-oil products,” the research firm said.
“Overall, we believe that global demand for palm oil products in 2020 will continue to be supported by the food (partly due to higher consumption of palm-oil in China, Pakistan and others) and energy [higher biodiesel mandate, primarily in Indonesia with B30 mandate (from B20) starting Jan20 and Malaysia with B20 (from B10) starting end-2020].
“The move by the Indonesian government to enforce the B30 biodiesel mandate, which could take up an additional circa 2.5 million MT of palm-oil from the market, is one of the key
reasons for palm-oil demand to remain strong and create tightness in global supply of palm-oil.
“Meanwhile, Malaysia’s B20 biodiesel could take up an additional circa 0.5 million MT of palm-oil from the market.”
On Malaysian palm oil inventory, AffinHwang Capital noted that it stood at 2.35 million MT as at 10M19, down from 3.2 million MT in December 2018, largely attributable to higher exports and domestic consumption over production.
For 2020E, given that demand will surpass production, the research firm expected inventory levels to trend lower.
“We think Malaysian inventory levels in 2020E could decline below two million MT level for the first time since August 2017.
“At the same time, Oil World is projecting for 2019-2020E global palm-oil stockpile to decline to 11.9 million MT, down 15 per cent y-o-y from 14 million MT in 2018-2019.
“This is mainly attributable to a decline in inventory in both top producing countries Indonesia and Malaysia.”
As for crude palm oil (CPO) prices, AffinHwang Capital highlighted that since
mid-October 2019, prices have been on a rising trend with the highest level reached at RM2,700 per MT in early-December 2019.
The research firm believed the anticipation of a higher demand growth rate for palm-oil products as compared to the production growth rate has boosted CPO prices.
Looking ahead, AffinHwang Capital maintained its CPO average selling price (ASP) assumptions for 2020-2021E at RM2,500 per MT to RM2,600 per MT from 2019E’s CPO ASP of RM2,050 per MT to RM2,100 per MT, up from 2018 CPO ASP of RM2,232.50 per MT.
“We do note that there could potentially be price setbacks in the near term, after the
sharp rally within a short period of time, nevertheless we do expect CPO ASP to be higher in 2020E.
“This is underpinned by growth in global production of palm-oil is slowing down – partly due to dry weather, reduced fertiliser application and minimal new plantings; rising world consumption of palm-oil for food in countries like China, India, Pakistan and others; rising palm-oil consumption in the biofuel sector – primarily Indonesia given the higher B30 biodiesel mandate in 2020; declining global stocks of palm-oil as consumption surpass production; and tightness in supplies of other edible oils.”