KUALA LUMPUR: Demand for palm oil products has improved in the second half (H2) of 2020 compared to H1 as countries restock edible oil inventories as their lockdowns ease and hotels, restaurants and catering businesses reopen, Affin Hwang Capital said.
Malaysia's October palm-oil product exports increased 3.8 per cent month-on-month (M-o-M) to 1.67 million tonnes, Affin Hwang said.
'Some of Malaysia's main buyers like India, Pakistan and the Philippines bought more products and offset the drop in demand from countries like China and the European Union (EU)," the firm said in a report today.
Exports to India, Pakistan and the Philippines were up by 13.1 per cent, 33.2 per cent and 7.5 per cent M-o-M respectively to 423,800 tonnes, 78,800 tonnes and 73,100 tonnes.
Affin Hwang said the increase in purchases of palm oil products from Malaysia's top buyer India could partly be attributable to the Deepavali festivity on November 13.
Nevertheless, the firm said Malaysia's total exports in 10 months of 2020 had declined 7.8 per cent year-on-year (Y-o-Y) to 14.4 million tonnes.
Affin Hwang said Malaysia's crude palm oil (CPO) production in October 2020 was surprisingly lower, declining by 7.8 per cent M-o-M to 1.72 million tonnes.
"We believe this was partly due to heavy rainfall that has delayed harvesting and could potentially shift some of the production into November (barring no extreme weather conditions affecting harvesting process)," it said.
Subsequently, Malaysia's October palm oil inventory declined by 148,600 tonnes (or 8.6 per cent) M-o-M to 1.57 million tonnes, the lowest level since June 2017, contrasting its earlier expectations of an increase.
"This is due mainly to lower-than-expected production, while exports remained healthy. We expect Malaysian palm oil exports supply in the coming months to drop, partly attributable to the current low stocks and seasonally declining production due to monsoon season.," it said.
Meanwhile, Affin Hwang said the average Malaysian Palm Oil Board (MPOB) locally-delivered CPO price in October stood at RM2,979.50 per tonne, up two per cent M-o-M (October 2019: RM2,104 per tonne).
Malaysia's 10-month 2020 CPO price averaged at RM2,583 per tonne, up 28.6 per cent Y-o-Y from RM2,008.50 per tonne during the same period in 2019.
Affin Hwang has maintained its "neutral" rating on the plantation sector.
Its top picks include Genting Plantations Bhd and Ta Ann Holdings Bhd, given their improving earnings prospects with rising fresh fruit bunch and CPO production and stronger CPO prices.