Periodic/Sector reports
Plantation: Third Straight Buildup, But Absorption Keeps Pace
Highlights
- MPOB’s Jun 26 data showed a 4.8% rise in Malaysia’s palm oil stockpiles to 2.54m tonnes, the highest for any June on record and slightly above the 2.50m Reuters consensus.
- June rainfall was broadly supportive across the regions, so the output divergence reflects the lagged imprint of earlier dry spells: Sarawak’s March deficit drove its June decline, while Sabah’s April deficit lands into 3Q. Both are lagged headwinds consistent with our El Niño thesis.
- Maintain OVERWEIGHT. Sector picks: SD Guthrie (BUY/Target: RM6.90) and Kuala Lumpur Kepong (BUY/Target: RM24.65).
Analysis
- MPOB’s Jun 26 data. Palm oil inventory rose to 2.54m tonnes (+4.8% mom), a third straight buildup and the highest June number on record, a shade above the 2.50m Reuters consensus but below our 2.65m estimate. The stock/usage ratio eased to 1.56x from 1.68x, showing CPO absorption largely keeping pace with the seasonal growth in supply.
- Production rose 8.1% mom to 1.64m tonnes, at the low end of our estate survey range of +8% to +12% and near the 1.65m consensus. Peninsular Malaysia (+15.4% mom) led on a well-distributed 2Q rainfall recovery. With June rainfall broadly supportive, the divergence between states reflects lagged moisture effects - Sarawak saw a rainfall deficit in March, while Sabah’s deficit in April should limit its output in 3Q.
- Exports rose 6.2% mom to 1.20m tonnes, above our 1.16m estimate but well below the 1.30m consensus. Palm’s decreased price competitiveness capped the recovery, with Indian buyers favouring South American soybean oil; the CPO discount to soybean oil into India remains near US$30/tonne vs a five-year average of about US$125/tonne.
- Imports more than doubled to 103,113 tonnes (+135% mom) as processed palm oil inflows surged in June. Implied domestic disappearance of 421,754 tonnes ran well above our pre-report assumption of 340,000 tonnes.
- Outlook. Production should climb further into the September-October seasonal peak, but the easing stock/usage ratio suggests absorption is largely keeping pace with supply. Near-term direction hinges on whether the July export recovery sustains and on whether gasoil stabilises. On supply, Sarawak’s March and Sabah’s April rainfall deficits are lagged headwinds to 2H output, consistent with our El Niño thesis of delayed, asymmetric yield loss building into 1Q27.
Highlights
- MPOB’s Jun 26 data showed a 4.8% rise in Malaysia’s palm oil stockpiles to 2.54m tonnes, the highest for any June on record and slightly above the 2.50m Reuters consensus.
- June rainfall was broadly supportive across the regions, so the output divergence reflects the lagged imprint of earlier dry spells: Sarawak’s March deficit drove its June decline, while Sabah’s April deficit lands into 3Q. Both are lagged headwinds consistent with our El Niño thesis.
- Maintain OVERWEIGHT. Sector picks: SD Guthrie (BUY/Target: RM6.90) and Kuala Lumpur Kepong (BUY/Target: RM24.65).
Analysis
- MPOB’s Jun 26 data. Palm oil inventory rose to 2.54m tonnes (+4.8% mom), a third straight buildup and the highest June number on record, a shade above the 2.50m Reuters consensus but below our 2.65m estimate. The stock/usage ratio eased to 1.56x from 1.68x, showing CPO absorption largely keeping pace with the seasonal growth in supply.
- Production rose 8.1% mom to 1.64m tonnes, at the low end of our estate survey range of +8% to +12% and near the 1.65m consensus. Peninsular Malaysia (+15.4% mom) led on a well-distributed 2Q rainfall recovery. With June rainfall broadly supportive, the divergence between states reflects lagged moisture effects - Sarawak saw a rainfall deficit in March, while Sabah’s deficit in April should limit its output in 3Q.
- Exports rose 6.2% mom to 1.20m tonnes, above our 1.16m estimate but well below the 1.30m consensus. Palm’s decreased price competitiveness capped the recovery, with Indian buyers favouring South American soybean oil; the CPO discount to soybean oil into India remains near US$30/tonne vs a five-year average of about US$125/tonne.
- Imports more than doubled to 103,113 tonnes (+135% mom) as processed palm oil inflows surged in June. Implied domestic disappearance of 421,754 tonnes ran well above our pre-report assumption of 340,000 tonnes.
- Outlook. Production should climb further into the September-October seasonal peak, but the easing stock/usage ratio suggests absorption is largely keeping pace with supply. Near-term direction hinges on whether the July export recovery sustains and on whether gasoil stabilises. On supply, Sarawak’s March and Sabah’s April rainfall deficits are lagged headwinds to 2H output, consistent with our El Niño thesis of delayed, asymmetric yield loss building into 1Q27.
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