Affin Hwang Maintains Neutral On Plantation On Increased CPO Exports

Affin Hwang Maintains Neutral On Plantation On Increased CPO Exports - Affin Hwang Capital Research maintained its neutral rating on the plantation sector and its crude palm oil (CPO) average selling price of RM2,600/MT for 2018E as exports contributed to a lower February palm oil inventory.

According to the research firm, CPO production was up 6.7% year-on-year to 1.34 million MT due to an improvement after the laffed effect of the El Nino that affected production in 2016.

On a month-on-month basis, however, production was down for a fourth consecutive month by 15.4% in February due to seasonal factors. However, compared to the previous year, CPO production was on the rise. 

"Total CPO production in 2M18 was up by 15.5% yoy to 2.93m MT. We expect Malaysia’s CPO production to continue to improve in 2018E (2017: 19.96m MT) and reach above the 20m MT level for the first

time (Oil World 2018 CPO production forecast: 20.76m MT)," said Affin Hwang Research. 

The increase in palm oil exports are also helping to lower inventory, with exports rising in February by 18.5% to 1.31 million MT, although on a month-on-month basis, exports declined 13%. 

Key buyers including China, India, Pakistan and the EU bought more of Malaysia's palm oil products, resulting in inventory declining to 2.48 million MT. 

"We believe that the suspension of the export tax on palm oil, effective January 2018, by the Malaysian Government has helped stimulate export demand for Malaysian palm oil products and contributed to the decline in the stock level," said the research firm.