KUCHING (March 13): Analysts believe that mixed earnings for planters in the fourth quarter of 2022 (4Q22) up to February this year was caused by the continuous wet weather.
RHB Investment Bank Bhd (RHB Research) saw that in Malaysia, an average 4.1 per cent year on year (y-o-y) output growth for the companies it cover in 4Q22.
“Most planters expect a recovery in output in 2023 – ranging from mid-single digit to low double digits, on the back of an improved labour workforce,” it said in a sector outlook.
“Labour shortages are expected to be fully resolved by 1H23. In Indonesia, we saw an average 12 per cent y-o-y and minus 14 per cent quarter on quarter (q-o-q) output growth for the companies we cover in 4Q22.
“The Association of Indonesian Palm Oil Producers’ (GAPKI) official 4Q22 numbers differed slightly – with an 11.4 per cent y-o-y and 2.5 per cent q-o-q increase, bringing FY22 CPO growth to minus 0.1 per cent y-o-y.
“For 2023, Indonesian planters are expecting a small single-digit recovery in production output.”
Malaysia’s February output fell 9.4 per cent month on month (m-o-m) while exports slipped two per cent, resulting in stocks falling to 2.12 million tonnes.
While output normally picks up in March after two months of weak production, things may turn out differently this year as a lot of key states such as Sabah, Johor and Pahang have been experiencing floods for the past few weeks.
Therefore, RHB Research might still see Malaysian palm oil stocks at lower levels at end-March, taking into account slightly stronger demand from Ramadhan and Aidilfitri as well as the impact of Indonesia’s domestic market obligation policy and export quota suspension.
“Still, given the time it takes for major importing countries to run down their inventory before restocking again, we believe a larger pickup in demand is only likely to come in 2H23,” it said.
The team with Hong Leong Investment Bank Bhd (HLIB Research) saw that crude palm oil (CPO) stockpile will likely remain on a downtrend in the near term.
“We believe stockpile will remain on the downtrend, given the recent excess rainfall which will likely impact near-term output, and Indonesia’s restrictive policy, which will likely boost Malaysia’s palm oil exports.
“In our view, CPO price will likely remain well supported at above RM4,000 per metric tonne in the near-term, supported by weak near term production outlook (arising from recent heavy rainfall, and Indonesia’s biodiesel mandate and near-term restrictive export policies).
“For now, we hold the view that CPO price will weaken once Indonesia relaxes on its DMO policy.”
The team at Maybank Investment Bank Bhd (Maybank IB Research) said that La Nina has ended, El Nino is possibly in the making.
“US’s NOAA Climate Prediction Center has officially called an end to La Nina on March 9. It expects ENSO-neutral conditions to continue through the Northern Hemisphere spring and early summer.
“Thereafter, the weather models are forecasting 56 to 63 per cent probabilities of El Nino making a comeback between July and December 2023. However, the forecasters also warn that forecasts made during the spring are usually less accurate.
“And even if El Nino were to make a comeback in 2H23, its intensity (whether it will be a mild, moderate or strong El Nino) is unknown at this juncture. In the meantime, the present ENSO-neutral conditions may signal a more normalised weather condition supportive of upcoming spring planting in the Northern Hemisphere.”
Furthermore, after three years of heavy rainfall brought about by three consecutive years of La Nina, Maybank IB Research noted that 2023’s palm oil production prospects in this region are unlikely to be thwarted by a mild or moderate El Nino (if any).
“Rather, yield achievements in 2023 will be more dependent on whether companies have enough workers, and have sufficiently fertilised their estates over the past two years or at least in 1H23.”