PLANTATION SECTOR

11 February 2016

Palm oil inventory down 12.4% MoM in January

Sector Report

OVERWEIGHT

Gan Huey Ling, CFA

gan-huey-ling@ambankgroup.com
603 2036 2305

Malaysian Palm Oil Board (MPOB) has released the countrys palm oil statistics for January 2016. Palm oil
inventory in Malaysia continued to decline for the second month in the row. Stockpiles of palm oil in Malaysia shrank
by 12.4% from 2.63mil tonnes in December 2015 to 2.31mil tonnes in January 2016. This was marginally below
consensus estimate of 2.33mil tonnes.

The MoM contraction in palm oil inventory in January can be attributed to declines in production and imports. Palm
oil imports eased by 47.7% MoM and 52.0% YoY to 43,133 tonnes in January 2016.

However going forward, we believe that downstream companies in Malaysia would increase imports of CPO from
Indonesia as the Malaysian government has loosened the curbs on imports. The cheaper cost of raw materials
from Indonesia would help oleochemical companies compete better with synthetic chemicals, which are made
from crude oil derivatives.

Malaysias CPO production contracted by 19.3% MoM and 2.7% YoY to 1.13mil tonnes in January 2016. We believe
that oil palm trees in the country are suffering from the lagged impact of El Nino. CPO output in Sabah plunged by
21.8% from 432,288 tonnes in December to 338,074 tonnes in January while CPO production in Peninsular Malaysia
shrank by 17.1%. In Sarawak, CPO output declined by 20.5% to 234,074 tonnes in January 2016.

MPOB has forecast Malaysias CPO production to inch up 0.7% from 19.96mil tonnes in 2015 to 20.1mil tonnes
in 2016F. Indonesia Palm Oil Association has estimated the countrys CPO output to expand from 32.5mil tonnes
in 2015 to a range of 33mil to 35mil tonnes in 2016F.

Malaysias palm oil exports fell by 13.8% MoM but improved 7.4% YoY to 1.28mil tonnes in January 2016. The 7.4%
YoY expansion in exports in January was due to a 64.4% surge in Indias purchases. European Union (EU) also
bought 7.4% more palm oil products in January 2016 compared with January 2015. On a negative note, Chinas
imports of Malaysian palm oil plunged by 51.6% YoY to 104,585 tonnes in January 2016.

Indias demand could be tapering off in the short-term as the country has huge stockpiles of edible oil products
currently. As at 1 January 2016, Indias inventory of vegetable oils stood at 1.11mil tonnes. Of this, about 520,000
tonnes were stockpiles of crude palm oil while another 200,000 tonnes were inventory of refined palm oil.

Average CPO price was RM2,251/tonne in January 2016, 4.6% higher than the average price of RM2,150/tonne
recorded in December 2015. Comparing January 2016 against January 2015, average CPO price was 1.9% weaker.
We have assumed that plantation companies with operations in Malaysia would realise an average CPO price of
RM2,400/tonne in 2016F.

Biodiesel exports fell from 10,004 tonnes in December 2015 to 61 tonnes in January 2016. On a YoY basis, biodiesel
exports were 99.5% lower in January 2016. We think that biodiesel exports would remain weak due to competition
from fossil fuel, which is cheaper.

Published by
AmInvestment Bank Bhd (23742-V)
(A member of the AmBank Group)

15th Floor Bangunan AmBank Group

55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (03)2070-2444 (research)
Fax: (03)2078-3162
Printed by
AmInvestment Bank Bhd

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended
in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer
to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd may from time to time have
a position in or with the securities mentioned herein. Members of the AmBank Group and their affiliates may provide services to any
company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived
from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and
opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability
can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute
our judgement as of this date and are subject to change without notice.
For AmInvestment Bank Bhd

(23742-V)

(A member of the AmBank Group)

15th Floor Bangunan AmBank Group

55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (03)2070-2444 (research)
Fax: (03)2078-3162

Benny Chew
Senior Vice President
Equity Research

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Plantation Sector

AmInvestment Bank Bhd

11 February 2016

CHART 1 : CPO PRODUCTION (MILLION TONNES)

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Source: MPOB

CHART 2 : CPO INVENTORY (MILLION TONNES)

2.7

2.2

1.7

1.2

0.7

Source: MPOB

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Apr-05
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Jan-13
Apr-13
Jul-13
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Jan-14
Apr-14
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Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16

Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16

Plantation Sector

AmInvestment Bank Bhd

11 February 2016

CHART 3 : CPO EXPORTS (MILLION TONNES)

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Source: MPOB

500,000

CHART 4 : EXPORTS TO CHINA (TONNES)

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

Source: MPOB

Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
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Oct-07
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Apr-08
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Jan-11
Apr-11
Jul-11
Oct-11
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Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16

Plantation Sector

AmInvestment Bank Bhd

11 February 2016

CHART 5 : EXPORTS TO INDIA (TONNES)

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

Source: MPOB

160,000

CHART 6 : EXPORTS TO USA (TONNES)

140,000

120,000

100,000

80,000

60,000

40,000

20,000

Source: MPOB

Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
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Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
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Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15

Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
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Apr-12
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Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16

Plantation Sector

1,600

1,400

11 February 2016

CHART 7 : EXPORTS TO EU (TONNES)

310,000

260,000

210,000

160,000

110,000

60,000

Source: MPOB

CHART 8 : PRICE DISCOUNT BETWEEN CPO AND SOYBEAN OIL (%) (UP TO DEC 2015)
(US$/tonne)

CPO price

1,200
Discount/premium

400

AmInvestment Bank Bhd

0.0%

Soyabean oil price

-5.0%
-10.0%

1,000

-15.0%

800

-20.0%

600

-25.0%

-30.0%

-35.0%

200

-40.0%

-45.0%

Source: MPOB

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Mar-15
May-15
Jul-15
Sep-15
Nov-15

Plantation Sector

3,500

3,000

AmInvestment Bank Bhd

11 February 2016

CHART 9 : MARKET DEMOGRAPHICS OF CPO FUTURES (%) VS CPO PRICE (RM/TONNE) (UP TO DEC 2015)

50
4,000

45

40
3,500

35

30
3,000

25
2,500

20

15
2,000

10
Foreign Institutions
Domestic Retail
CPO price

0
1,500

1,000

Source: Bursa Malaysia

4,000

CHART 10 : CPO INVENTORY (MILLION TONNES) VS CPO PRICE (RM/TONNE)

3.5

CPO price

CPO stocks

Average inventory

500
3

2.5

2,500
2

2,000
1.5

1,500
1

1,000
0.5

Source: MPOB

AmInvestment Bank Bhd

20

Jan-16

Oct-15

May-15

Dec-14

Jul-14

Feb-14

Sep-13

Apr-13

Nov-12

Jun-12

140

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-12

Aug-11

Mar-11

Oct-10

May-10

Dec-09

Jul-09

Feb-09

Sep-08

Apr-08

Nov-07

Jun-07

Jan-07

Crude oil

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

Jan-91

Jan-90

Jan-89

Jan-88

Jan-87

Plantation Sector

11 February 2016

CHART 11 : CPO PRICE (RM/TONNE) VERSUS CRUDE OIL (US$/BARREL)

4,000

120
3,500

100
3,000

80

60
2,500

40

CPO price
2,000

1,500

Source: MPOB, Bloomberg

CHART 12 : HISTORICAL CPO PRICE CYCLE (RM/TONNE)

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

Source: MPOB