ANALYSTS are mixed on their outlook for crude palm oil (CPO) production yield in Malaysia following a decline in inventory in March.

Malaysia’s stockpile fell to 1.67 million tonnes, which represented a 21.1 per cent month-on-month decrease, data from the Malaysian Palm Oil Board indicated. 

This was caused by low production resulting from floods in key states such as Johor and Pahang, and higher exports as Indonesian players continued to face export restrictions imposed by the government, Maybank said in a report on Tuesday (Apr 11). 

UOB Kay Hian (UOBKH) expects production yields to improve now that the rains have subsided. A strong recovery, however, is unlikely due to prominent signs of tree stress, which could lead to lower productivity.

Production may also be hampered by the Hari Raya festival in April, noted RHB in a separate report. It also expects CPO stock levels to continue dropping in April.

Meanwhile, UOBKH believes inventory could drop below 1.5 million tonnes on lower production – despite weak exports. The research team is predicting lower exports in April as CPO loses its price competitiveness to vegetable oils in Europe, China and India.

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Malaysia’s low stockpile level may support CPO price recovery, said DBS Group Research. The fall in inventory levels broke the research team’s bottom range threshold of 2.2 million tonnes.

Nevertheless, DBS warned that the recent trend of lower CPO selling prices could mean lower year-on-year earnings for upstream CPO planters in Q1. It maintained its “buy” call on Singapore-listed Wilmar International : F34 0%, First Resources : EB5 0% and Bumitama Agri : P8Z 0%, as well as Jakarta-listed London Sumatra.

RHB, meanwhile, has both Wilmar and Golden Agri Resources : E5H 0% as its top picks. The latter is expected to show better performance in a “lower CPO price environment”, RHB said. The brokerage rated the counter a “buy” with a target price of S$0.34.

In the near term, Maybank expects CPO prices to stay volatile before trending lower by mid-year on the expectation of seasonal output recovery.

UOBKH expects the price of CPO to linger between RM3,500 (S$1,055.38) and RM4,300 per tonne for the first half of 2023, while RHB expects CPO prices to remain between RM3,500 and RM4,500 per tonne for the rest of 2023.

Maybank and RHB are “neutral” on the region’s plantation sector, while UOBKH maintained its “market weight” call.