Corporate

@ AGROBiz | MARCH-APRIL . 2024

Plantation sector shows signs of recovery amidst market dynamics

A recent report by MIDF Research sheds light on the sector ’ s performance and provides insightful information into its future trajectory . MIDF Research is part of MIDF Amanah Investment Bank Berhad .

PRODUCTION RECOVERY SUSTAINED

In March , Malaysia ’ s CPO production remained decent at 1.39 million tonnes , marking a significant increase of 10.6 per cent month over month ( MoM ) and 8.1 per cent year over year ( YoY ).

This growth was attributed to improved productivity , particularly in the Peninsula area , with increased foreign labour efficiency . However , Sabah faced challenges due to dry weather conditions , resulting in a 9.3 per cent YoY decline in production .

Mills received 7.2 million tonnes of Fresh Fruit Bunches ( FFB ), with an increased yield of 1.17 tonnes per hectare . Despite these positive indicators , the Oil

Extraction Rate ( OER ) remained muted at 19.80 per cent due to low crop seasonality in most of the states .

Anticipating a mild La Niña in the latter half of 2024 , production performance is expected to improve even further in the second quarter . A mixed dry and rainy weather pattern in May and June will benefit palm trees . This will lead to better pollination cycles and maintain estate activity , riding on the productivity of newly hired foreign labour .

INVENTORY LEVELS AND MARKET DYNAMICS

Although ending stockpiles in March reached a nine-month low , standing at 1.7 million tonnes , inventory levels increased 2.4 per cent YoY . This trend was attributed

In March , Malaysia ’ s CPO production remained decent at 1.39 million tonnes , marking a significant increase of 10.6 per cent month over month ( MoM ) and 8.1 per cent year over year ( YoY ).

to a decrease in exports and higher local demand . The demand surge for palm oilbased products was fuelled by anticipation of the Hari Raya celebrations .

However , the decrease in exports was primarily attributed to price effects . The strengthening of the CPO price to approximately US $ 943 per metric tonne reduced its competitiveness against other vegetable oils in key importing countries like India and Pakistan . These nations profited from the narrowed premium discount against Soybean Oil ( SBO ) prices , which stood at US $ 22 per metric tonne , a staggering 92 per cent below the threeyear average .

During the month , CPO and processed palm oil stocks were up by 2.4 per cent and 17.3 per cent YoY , respectively . The surge was mainly driven by higher contributions from Sarawak , which saw a 13.6 per cent YoY increase , while stockpiles in the Peninsular area remained relatively muted , with only a 1.9 per cent YoY increase .

CPO prices are expected to moderate in the second quarter of 2024 , influenced by market dynamics and weather patterns . Despite ending March at RM4,285.0 / MT , prices are forecasted to fluctuate , reaching an average of RM4,410.5 / MT in April due to the peak of mild El Niño events . However , a softening is anticipated in May as weather conditions normalise ahead of the La Niña event in the latter half of the year .

INVESTMENT OUTLOOK

In summary , MIDF Research maintains a neutral stance on the plantation sector , with a CPO target price of RM3,600 / MT for the year . While companies ’ top-line performance is expected to remain positive in the first and second quarters of 2024 , driven by elevated CPO prices and low crop seasonality , a gradual decline towards the end of the quarter prompts a shift towards a trading strategy .

Investors are advised to consider locking in profits for top stock picks such as Ta Ann , KLK , and IOI Corp , as share prices are expected to decline gradually . However , market participants should remain vigilant and adapt to changing market dynamics and weather patterns that may influence the sector ’ s performance .

As the plantation sector continues its path towards recovery , careful consideration of investment strategies and market conditions will be crucial for stakeholders navigating this dynamic landscape . – @ AGROBiz