PETALING JAYA: Malaysia's crude palm oil (CPO) production may have dropped further in November due to heavier-than-usual rainfall caused by La Nina, worker shortage and seasonality factors.
The lower output, which in turn leads to a decline in Malaysia’s palm oil stocks, is expected to support CPO prices moving forward.
After a 7.8% month-on-month (m-o-m) contraction in October, a survey by the CGS-CIMB Futures team revealed that CPO output in November may have declined further by 10.4% m-o-m to 1,55 tonnes.
This is weaker than the historical trend of a 3.5% m-o-m decline in November output over the past 10 years.
According to CGS-CIMB Research, Sabah estates posted the highest month-on-month drop in production while Sarawak estates registered the lowest.
“However, the lower production versus the past 10-year average of 1.73 million tonnes could be due to worker shortage issues caused by the current freeze on foreign worker permits and seasonality factors as well as some disruptions in harvesting and evacuation due to heavier-than-usual rainfall caused by La Nina, ” it said in a note.
Official figures will be released on Dec 10.
CGS-CIMB Research also anticipates Malaysia’s palm oil inventory to fall by 2% m-o-m and 32% year-on-year (y-o-y) to 1.54 million tonnes at end-Nov 2020.
It is noteworthy that this would be the lowest stock level for the month of November since 2004.
Over the past 10 years, Malaysian palm oil inventory had risen by an average of 3.5% m-o-m in the month of November.
“We estimate that palm oil exports fell 17% m-o-m in November 2020 to 1.38 million tonnes, lower than the average November palm oil exports of 1.49 million tonnes over the past 10 years.
“We suspect that the weaker exports could be partly due to the rally in CPO prices which has led to rationing of demand by consumers.
“Also, some traders could have held back purchases in anticipation of potential cuts in import duties on CPO by the Indian government, ” according to the research house.
For perspective, India has cut CPO import duties by 10% points to 27.5% effective Nov 27,2020.
CGS-CIMB Research projects CPO prices to trade between RM2,800 to RM3,400 per tonne in December.
“(This is) in view of the projected low inventory in Malaysia, which will take time to rebuild as well as higher exports from Malaysia as traders take advantage of lower India import duties on CPO and Malaysia’s current zero export tax on CPO, ” it said.
Average CPO price rose 15% m-o-m and 37% y-o-y to RM3,436 per tonne in November.
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