Malaysia’s palm oil inventory saw a rise to 2.2 million tonnes in August, as production increased by 2.3% month-on-month to 1.86 million tonnes, according to a recent report by UOB Kay Hian Research. The report highlights that whilst production surged, exports remained relatively unchanged, dropping slightly by 0.3% to 1.32 million tonnes, contrary to market expectations of a 10-15% increase.
The Malaysian Palm Oil Board’s (MPOB) data for August indicates that the growth in production was primarily driven by East Malaysia, particularly Sarawak, which saw a 9.2% increase. Despite the rise in production, the report maintains a “Market Weight” stance on the sector, suggesting that the current crude palm oil (CPO) price levels are unlikely to see significant upward movement in the near term.
Hap Seng Plantations remains the top pick for UOB Kay Hian, with a “Buy” recommendation and a target price of $0.47 (RM2.20). The report notes that the company’s strong cash position and attractive dividend yields make it a favourable investment.
Looking ahead, the report anticipates that production growth may slow in September, with inventory levels expected to continue rising, albeit at a moderate pace. The potential for increased CPO prices is limited due to a loosening supply-demand balance, with the forecasted CPO price for 2025 remaining at $0.90 (RM4,200) per tonne.
The report also points to potential risks, including weaker-than-expected industry output and incremental demand from regional biofuel policy expansions, which could impact inventory levels and CPO prices.
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