CGSCIMB 'NEUTRAL' ON AGRIBUSINESS DUE TO MIXED INDICATORS

KUALA LUMPUR, May 6  -- CGSCIMB has maintained its 'neutral' rating on the country’s agribusiness sector following mixed indicators in the crude palm oil (CPO) stocks, production and exports.

A survey by CGSCIMB Futures said Malaysia’s CPO output up 6.8 per cent month-on-month (m-o-m) to 1.52 million tonnes in April 2021, while palm oil exports likely grew 12.5 per cent m-o-m based on export statistics by cargo surveyors.

“We estimate that Malaysia’s palm oil inventory probably grew by 1.8 per cent m-o-m but we also forecast that the inventory would decline by 28 per cent y-o-y to 1.47 million tonnes at end of April 2021,” it said.

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CGSCIMB said this was broadly in line with historical trends, where Malaysian palm oil stocks in April have risen at an average 1.3 per cent m-o-m over the past 10 years.

Despite this, the projected palm oil stock level in Malaysia remains tight as it is 26 per cent below historical average April palm oil stock levels of 1.98 million tonnes for the past 10 years.

CGSCIMB said CPO production trending higher m-o-m but lagging behind 2020’s level and the output was estimated to increase by 7.0 per cent m-o-m to 1.52 million tonnes in April 2021.

This is broadly in line with historical trends of a 6.0 per cent m-o-m rise in April output over the past 10 years, as well as the past 10-year average CPO output of 1.51 million tonnes for April, it added.

“Our survey reveals that Sabah’s estates posted the strongest m-o-m production gains in April. However, one concern is the stagnant palm oil output from Malaysia’s estates, possibly due to a shortage of foreign workers due to the on-going freeze on foreign worker recruitment since March 2020 due to the COVID-19 pandemic.

“In addition, ageing trees due to slow replanting and slower new planting rates may have contributed to Malaysia’s flattish palm oil supply,”it added.

On palm oil exports, the figure is likely to grow 12.5 per cent m-o-m ahead of the festival, and palm oil exports is estimated to grow by 12.5 per cent m-o-m and 8.0 per cent y-o-y in April to 1.33 million tonnes, likely due to stronger demand from India, China and South Africa.

Palm oil is attracting strong demand due to the widening price discount against soybean oil of US$357 per tonne versus historical five-year average of about US$122 per tonne and the Aidilfitri festival in mid-May 2021, but this could taper off if India were to impose even stricter movement controls to contain worsening COVID-19.

April Average CPO price rose 4.0 per cent m-o-m and 84 per cent y-o-y to RM4,220 per tonne, a new monthly record high, driven by the sharp rise in competing edible oil prices.

On the prices, the firm projected that CPO prices to remain firm at between RM3,500 to RM4,200 per tonne in May 2021 amid low global edible oil inventories which will take time to rebuild.

-- BERNAMA