May palm oil inventory seen to decline

palm oil factory

PETALING JAYA: Malaysia’s palm oil inventory probably fell by 6.6% month-on-month (m-o-m) and 2.2% year-on-year (y-o-y) to 1.52 million tonnes at the end of May 2022, says CGS-CIMB Research, who believes the decline could be due to lower output despite higher exports.

CGS-CIMB Research house said the likely m-o-m decline in stock levels is greater compared to the historical trends in Malaysia’s palm oil stock movements for the month of May which stood at an average decline of 2% m-o-m over the past decade.

CGS-CIMB Research’s forecast of 1.53 million tonnes for palm oil stock level in Malaysia for May 2022 is 20% below the 10-year historical May average of 1.91 million tonnes, suggesting supplies remained tight to the end of May.

A survey by CGS-CIMB Futures team revealed that Malaysia’s crude palm oil (CPO) output likely fell by 1.4% m-o-m and 8.3% y-o-y to 1.44 million tonnes in May 2022, owing to fewer working days at the estates due to International Workers day and Hari Raya celebrations.

“Meanwhile, palm oil exports likely grew by 22.5% m-o-m and 2.1% y-o-y to 1.29 millon tonnes, based on export statistics by cargo surveyors Intertek (+24.6% m-o-m), SGS (+20.5% m-o-m) and Amspec Malaysia (+22.4% m-o-m),” CGS-CIMB said.

The higher exports are due to the palm oil export ban by Indonesia from April 28 to May 23 that shifted palm oil demand from Indonesia to Malaysia.

The official figures for Malaysia’s palm oil inventory will be released on Friday, according to the research firm.

Speaking of the CPO price in Malaysia, the research firm believes several factors could impact it in the coming months.

The first being the multiple changes in Indonesia regulations relating to palm oil exports and their impact on plam oil export volume out of Indonesia.

“Indonesia has announced a 20% Domestic Market Obligation (DMO), plans to change export levy (to be announced), plans to implement a Domestic Price Obligation (DPO) for 300,000 tonnes of cooking oil/month,” CGS-CIMB said, adding there are also plans to audit the palm oil sector in Indonesia.

The research house is of the view that palm oil exports out of Indonesia are likely to rise in the coming months. However, the research firm did not rule out uncertainty due to constant tweaks to the export rulings.

Secondly, the recruitment of foreign workers by Malaysian palm oil producers post the Hari Raya holidays to raise the productivity at estates could impact the CPO price.

Other factors noted were the weather in key planting areas and the on-going Russia-Ukraine war.

The research house maintained its CPO price forecasts at RM5,600/tonne for the financial year 2022 and RM3,800/tonne for the financial year 2023.