Plantation
Plantation Sector - Palm oil inventory heading north
Wed, 11-Jun-2025 07:40 am
by Steven Chong • Apex Research

Export registered relatively strong growth.  Palm oil exports surged in May, rising +25.6% mom, driven by strong demand from key markets. According to Intertek, exports to China jumped +52.7% mom to 128,220 tonnes, while shipments to India and the EU rose +41.0% mom and +11.9% mom to 287,800 tonnes and 297,351 tonnes, respectively. That said, preliminary data for the first 15 days of June showed a -7.8% mom decline in export, suggesting that the earlier restocking momentum may be tapering o

Palm oil closing stocks pilling up. Palm oil closing stocks expanded further in May, edging closer to the 2.0 mn tonnes mark. Inventories rose +6.6% mom (from 1.87mn tonnes) and +13.5% yoy (from 1.75 mn tonnes). Despite the increase in stock levels, the stock-to-usage ratio declined to 1.6x from 1.9x, thanks to the robust export demand. Looking ahead, palm oil inventories are likely to build up in the coming months as CPO production enters its peak season.

CPO price eased in May. Average CPO price in May was RM3,881/mt, eased -10.2% mom due to seasonal output increases. Nevertheless, CPO price in early-June has gained mild momentum and closing above RM3,900/mt. Soybean oil prices remain stable, supported by tighter soybean supply in the US and firm demand from China, which continues to sustain CPO’s discount to soybean oil. That said, we expect gains to be capped by the seasonal peak in palm oil production, which is likely to limit further upside in the coming months. 

Malaysia CPO export duty is set at 9.5% in June. Malaysia is poised to gain a competitive advantage in the global palm oil export market in June, as its CPO export duty has been set at 9.5%, based on a reference price of RM3,926.59 per tonne (c. USD915). This translates to an effective export duty of c.USD87 per tonne. In contrast, Indonesia’s CPO reference price is slightly lower at USD856.38; however, its total export charges (export tax of USD52 and a levy of USD72) amount to a steeper USD124 per tonne. While Indonesia typically dominates in terms of volume due to its larger production scale, the heavier duty may reduce its price competitiveness, potentially redirecting some demand to Malaysia and lending near-term support to CPO prices.

Keeping neutral stance. We maintain our neutral stance on the sector, as we expect softening CPO price amid a hefty inventory. We continue to favour integrated planters like Sime Darby Guthrie (FV: RM5.20) as we see potential upside from value unlocking of its sizeable landbank, particularly in the Klang Valley, which could act as a re-rating catalyst should monetisation efforts accelerate. We also like Hap Seng Plantations (FV: RM2.00), viewing its valuation as compelling, currently trading at -0.5 std below its 3-year forward mean. At the same time, we maintain our HOLD call on Kim Loong Resources (FV: RM2.10), Kuala Lumpur Kepong (FV: RM21.60), Sarawak Plantations (FV: RM2.30), and United Plantation (FV: RM21.60).

Recommendation: Neutral
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