KUALA LUMPUR: Malaysia's crude oil palm (CPO) production is expected to be higher in the second half of 2021 (2H21) than 1H21, and potentially peak in September to October, said Affin Hwang Capital.
The firm said Malaysia's CPO production in August had rebounded 11.8 per cent month-on-month (mom) to 1.7 million tonnes after a drop in July.
"The demand for palm-oil products will improve as global economies gradually re-open, movement control orders are relaxed and HORECA (hotel, restaurant and cafe) businesses re-open for dine-in.
"For 2021 earnings, we expect Malaysia's CPO production to be lower, potentially by 4.0-6.0 per cent year on year (yoy) from 19.14 million tonnes in 2020," it said.
Affin Hwang said Malaysia's August palm oil product exports had dropped 17.1 per cent mom to 1.16 million tonnes given a reduction in demand from buyers like China, European Union and Turkey.
It said the high prices, less gatherings/events and disruptions in HORECA businesses due to the Covid-19 pandemic has affected demand for palm oil.
"On top of that, we believe Indonesia has been gaining some market share as Malaysia's production has been weaker yoy, while Indonesia's production and exports are up yoy," it said.
Meanwhile, Affin Hwang said the average MPOB locally-delivered CPO price in August stood at RM4,555 per MT, up 10.3 per cent mom.
The firm expects the vegetable oil and oilseed markets to remain volatile.
"Edible oil prices have remained high, supported by the tightness in supply of edible oils as well as tight stocks for oilseed and vegetable oils in most countries.
"However, the recovery in palm oil production and recovery in global production of oilseeds and vegetable oils could have a bearish impact on price- making.
"The uncertainties in weather patterns that would affect crop production could still keep prices volatile, in our view," it said.
Overall, Affin Hwang remains "neutral" on the plantation sector and keep its CPO average selling price assumption for 2021 at RM3,800-RM3,900 per tonne.
"Our top picks for the sector are Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd," it said.