Palm Oil 02 (Jun 14 - Dec 26)

[winston]

Indonesia proposes to reduce export levies

ID’s planters to benefit if CPO price stays lofty

Indonesia (ID) is mulling a reduction in export levies.

The proposed\revision is generally positive for the industry’s earnings there as net
receipts from the sale of CPO will improve, but only if CPO price continues to stay lofty in the coming months.

Prime beneficiaries will be ID upstream planters, followed closely by integrated players there.

Positive sector call maintained. Our top BUYs are KLK, SOP, and BPLANT.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/224778.pdf

[winston]

Plantation – Regional
Green Diesel Demand Boosts SBO Prices, But Not CPO Prices

CPO spot price has weakened about 25% from its peak in mid-May 21.

The largest adjustment took place during the last two weeks when soybean oil (SBO) price dropped on concerns of possibly lower biodiesel blending as well as more soybean production as weather conditions improve.

Palm oil production has exceeded market expectations during the last three months.

Price is on a downtrend but from a very elevated level.

Share prices of plantation companies will remain under pressure. Maintain MARKET WEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... 9aa0a4c33f

[winston]

Malaysia plantation (Record-high CPO price lifts earnings)

The two plantation giants recorded above-consensus June-end quarterly results, setting strong momentum into 2H21.

The record-high CPO price will likely offset potential weaker FFB production, thereby keeping a robust earnings trend.

We raise our 2022 CPO price forecast from RM2,000 to RM3,000/tonne as supply tightness caused by Covid-19 is expected to prevail before a production recovery materialises by mid-2022.

KL Kepong is still our preferred pick with relatively younger age tree profile and fewer ESG concerns.

Source: CLSA

[winston]

Further M&A activity expected for plantations sector

Source: The Star

https://www.thestar.com.my/business/bus ... ons-sector

[winston]

Aug 23, 2021

Near term headwinds
Expect some CPO price pressure this week

We expect some price pressure on CPO in the week ahead.

India’s soyoil and sunflower oil import duty cuts of 7.5-ppts for a period of 6 weeks is
expected to be mildly negative on CPO demand and price.

The wetter weather forecast in the US in the coming days has also added some
pressure on US soyoil prices.

Meanwhile, the much awaited EPA’s proposal on US biofuel blend in 2021 and 2022 will help set near term price direction.

While we doubt the current high CPO price is long-term sustainable, it will nonetheless stay lofty (by historical standards) till early next year.

Preferred BUYs are KLK, SOP and BPLANT.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/231445.pdf

[winston]

Jul 21, 2021

Negative IOD at play. La Nina to follow in Q4?
US drought risk is supportive of prices for now

2021 may just be another anomaly for MY and ID, thanks to negative IOD that brings above-normal rain during the usually dry Q3 period.

While rainfall has been good for the past 19 months, 2H21 PO output risks being below potential due to the lagged effect of possibly low fertilizer applied over the last 2 years, and worker shortage in MY.

In the US, weather has not been ideal, with further dry weather forecasts in the
coming weeks. US’ yields are at risk and will be supportive of prices.

We maintain our POSITIVE sector view. Preferred BUYs: KLK, SOP & BPLANT.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/227336.pdf

[winston]

Stockpile rose to 14-month high, but still relatively tight
August stockpile surprised the market negatively

MPOB’s August 2021 stockpile rose to 1.87mt (+25% MoM, +10% YoY), ahead of street estimates of 1.74mt.

Key surprise was the weak August exports although there is preliminary sign of an export recovery in September.

Positively, India once again cut its import duties of palm oil, SBO and SFO by 5-ppts over the weekend, likely to spur more imports.

Stay POSITIVE on the sector. Preferred BUYs are KLK, SOP and BPLANT.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/233809.pdf

[winston]

Plantation – Malaysia
End-stock Reaches 14-month High Due To Weak Demand

Malaysia’s palm oil stocks came in above market expectation, which led to 3-month
future price of CPO dropping by RM113/month.

End-stock for Aug 21 reached a 14-month high at 1.87m tonnes due to weaker domestic and external demand.

The recent CPO price rally on expectations of weak production, especially from Malaysia due to the severe workers shortage, could lead to the loss of competitiveness at some importing countries and demand rationing.

Maintain UNDERWEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... 841033f9b4

[winston]

Plantation – Malaysia
More Foreign Workers To Come, But Only Likely To See Improvement In 2H22

Malaysia will let in 32,000 foreign workers to ease the labour crunch in the sector.

The process is likely to take a few months to complete.

We are only expecting the positive contributions from this relaxation to come in during 2H22 provided all 32,000 workers come by 1Q22.

However, more severe shortage is likely to come first with vaccinated workers requesting to leave.

Other headwinds for the sectors are flooding due to high rainfall and spikes in fertiliser cost. Maintain UNDERWEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... d53f10fa6c

[winston]

12MP: Accelerating the circular economy
Opportunity to help green and grow the economy

The oil palm sector has a role under the 12MP (2021-2025) to accelerate the circular economy initiatives by turning waste into energy and higher value biomass products while helping to reduce overall GHG emissions.

The use of green fuel via higher B30 mandate at the end of 12MP may just be possible if a carbon tax is introduced to provide sustainable funding to the government.

Farmers are expected to accelerate the adoption of modern technology (ie smart farming) to raise productivity.

Stay POSITIVE on the sector. Top BUYs are KLK, SOP and BPLANT.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/235377.pdf