Updated: Feb 15
Malaysian oil palm growers are benefiting from Indonesia’s new export policy through higher crude palm oil (CPO) prices, said Maybank Investment Bank (IB).
Indonesia’s new export ruling that came into effect on Jan 27, 2022, has widened the domestic CPO price gap between Malaysia and Indonesia by RM246 per tonne to RM1,378 per tonne on Feb 3, from RM1,132 per tonne on Jan 27, it said in its research note on Monday (Feb 7).
On Jan 27, Indonesia’s Trade Minister, Muhammad Lutfi said that exporters must set aside 20% of their shipments for domestic market obligation (DMO) to ensure sufficient cooking oil supply in the domestic market at affordable prices.
“Since the announcement of Indonesia’s new policy, one-month crude palm oil futures (FCPO) on Bursa Malaysia Derivatives rose 1.8% week-on-week (WoW) to RM5,714 per tonne on Feb 3 but off its record high price of RM5,803 per tonne on Jan 28 on concerns over lesser availability of palm oil in the export market."
“While CPO price trended higher in Malaysia, domestic CPO price in Indonesia fell 2.8% WoW to IDR14,930 per kilogramme (kg) on Feb 3,” it said.
The bank said this implies that the Indonesia growers are sharing the burden of subsidising the domestic cooking oil prices.
“The overall impact was considerably smaller than Maybank IB’s estimates as we had expected Indonesia CPO prices to theoretically adjust down to IDR14,000 per kg last week. We suspect the Indonesia refiners are sacrificing some of their refining margins too,” it said.
It noted that the relatively more Malaysia-centric growers such as IOI Corp, Sarawak Oil Palm (SOP), Boustead Plantations (BLANT), Ta Ann (TAH), TH Plantation (THP), Hap Seng Plantations (HAPL), and FGV are clear beneficiaries from the policy.
As such, the research house remained positive on the sector, and maintained its ‘buy’ call on Kuala Lumpur Kepong (KLK), SOP and BPLANT with a target price of RM30.70, RM5.60 and RM0.93 per unit, respectively.
Nonetheless, it noted several risk factors that may affect its sector view, earnings estimates, price targets, and ratings of stocks under coverage.
The upside risks are namely weaker-than-expected production recovery of palm oil and other vegetable oils in 2022; Brent crude oil price inching closer to US$100 per barrel and weather anomalies at major palm oil and oilseeds producing regions.
“Meanwhile, downside risks are Brent crude oil price falling sharply to below US$60 per barrel; negative policies imposed by importing countries; unfriendly government policies at producing or exporting countries; stronger production in 2022; as well as weaker global demand and weaker competing oil prices,” it added.