"We expect the palm-oil inventory level to rise further in the coming months as we believe consumption for palm-oil products could potentially slow, especially for the food industry and energy sector," it said.
The research house kept its CPO price assumptions for 2020-21 at RM2,100-2,200/MT given its more cautious stance on the demand outlook and weak crude oil price environment. This compares to April's average MPOB locally delivered CPO price of RM2,299/MT, which was 3.5% lower m-o-m.
Year-to-date, the CPO price averaged RM2,551/MT, 26.5% higher y-o-y.
Over its coverage, Affin Hwang has "hold" ratings on Ta Ann, IJM Plantation, Hap Seng Plantation and Jaya Tiasa, and "sell" ratings on IOI Corp, Kuala Lumpur Kepong, FGV, Sime Darby Plantation and Genting Plantation
In April, Malaysia's CPO production continued to outweigh demand, causing inventory to rise a further 315.8 metric tonnes (MT) month-on-month to 2.05MT.
CPO production in Peninsular Malaysia, Sabah and Sarawak increased 18%, 23.1% and 13.5% respectively during the month.
Over the four months to April 30 however, Malaysia's CPO production fell 16.6% year-on-year to 5.5 million due to weak production in the first three months of the year.
Malaysia's CPO production in 2020 is expected to drop 2% to 3% y-o-y due to the movement control order, lagged effect of the dry weather in 2019, lagged effect of lower fertiliser fertilisation and minimal new plantings of oil palm.
Affin Hwang does not expect a huge increase in exports as the coronavirus is expected to slow down the global economy even some countries could be restocking edible oils amid the easing lockdowns.
"Fewer gatherings/ events, higher unemployment rates and lower disposable incomes could
lead to a lower consumption of edible oils, in our view," it said.
Malaysia's April palm oil exports rose 4.4% m-o-m to 1.2 million MT due mainly to Saudi Arabia, China and the EU increasing their purchases. However, total exports over the four months to April 30 dropped 24.9% to 4.7 million MT.