Palm Oil Stockpiles at 19-Month High

Malaysia’s palm oil industry delivered a mixed performance in July 2025. CPO production rose 7.1% MoM to 1.81mn tonnes but remained 1.6% lower YoY. The higher output led to a fifth consecutive month of stockpile accumulation, with inventories increasing 4.0% MoM to a record 2.11mn tonnes, up 20.4% YoY, though below consensus estimates of 2.23-2.25mn tonnes. Exports expanded 3.8% MoM to 1.31mn tonnes, exceeding market expectations (1.29-1.30mn tonnes), but fell sharply by 22.9% YoY. Domestic usage climbed 4.9% MoM to 474.9k tonnes, while imports contracted 24.0% MoM to 53.2k tonnes, yet remained significantly higher YoY (+407.7%).

On a YTD basis, CPO production totalled 10.78mn tonnes (+0.6% YoY). Exports declined 10.5% YoY to 8.26mn tonnes, while domestic usage surged 20.9% YoY to 2.64mn tonnes. Imports more than tripled to 528k tonnes (+226.3% YoY). Overall, we view the July data as presenting a Neutral outlook for CPO prices. Rising stockpiles from modest production gains may be partly balanced by better-than-expected export performance.

Production Rebounds on Stronger Peninsular Yields

CPO production rebounded in July, continuing its uptrend to 1.81mn tonnes (+7.1% MoM). The increase was mainly supported by higher yields in Peninsular Malaysia, which surged 13.2% MoM to 1.89 tonnes. In contrast, Sabah and Sarawak recorded lower yields of 1.29 tonnes (-4.4% MoM) and 1.19 tonnes (-0.8% MoM) respectively.

On a YTD basis, total CPO production edged up 0.6% to 10.78mn tonnes, with an average yield of 9.35 tonnes, comparable to pre-COVID levels. Looking ahead, we expect production to sustain its upward momentum into 3Q, supported by historical seasonal patterns and improved harvesting activities in key regions. The production trend is likely to taper off only towards year-end.

Exports in July Rose 3.8% but Plunged 22.9% YoY

Exports in July rose 3.8% MoM to 1.31mn tonnes but remained sharply lower YoY, down 22.9%. For the YTD period, exports fell 10.5% YoY to 8.26mn tonnes. Looking ahead, early August export trends appear encouraging. Amspec and Intertek estimate a 23.3% and 23.7% rise respectively in palm oil shipments for the first ten days of Aug 2025, to 483k tonnes and 453k tonnes.

Bumper U.S. Soybean Crop and Weak China Demand Pose Risks to Palm Oil

Soybean futures fell below USD10/bushel in July, weighed down by favourable weather conditions across the U.S. Midwest that strengthened expectations for a large harvest and rising inventories. Market consensus is expecting a bumper corn and soybean crop in the U.S this year. For soybeans in particular, September is a critical period as crop development enters its final stage before harvest.

A major concern for the market is the absence of buying from China. While China typically secures its 4Q soybean needs during this time of year, recent data from the U.S. Department of Agriculture (USDA) showed zero net sales to China for the 2024/25 marketing year as of the week ending 31 July. This marks the 14th consecutive week without a sale, intensifying export concerns and further contributing to bearish market sentiment. Without this key buyer, the U.S. faces a potential surplus that will be difficult to offload.

The situation is compounded by China’s domestic market conditions. Due to a surge in soybean imports during the first half of 2025 and weak feed demand, China’s soybean meal inventories are already high, adding to oversupply pressures and dampening the incentive to buy from the U.S.

In our view, a significant and sustained decline in soybean prices would almost certainly place strong downward pressure on CPO prices. A drop in soybean oil prices would narrow its premium over palm oil, reducing palm oil’s relative price advantage and making it less competitive in key markets. Given the high correlation between the two oils in the global vegetable oils complex, prolonged weakness in soybeans could translate into meaningful headwinds for CPO.

Maintain Neutral

We maintain our NEUTRAL stance on the Plantation sector. Our average CPO price forecast of RM3,800/tonne for 2025 is currently under review. We reiterate our HOLD ratings on SDG (TP: RM5.18), UMCCA (TP: RM5.70), TSH (TP: RM1.24), and KIML (TP: RM2.31), and maintain a SELL on IOICORP (TP: RM3.74). Meanwhile, we upgrade KLK (TP: RM20.67) to HOLD from SELL, following its recent share price weakness.

Key downside risks to our sector recommendation include: 1) South America’s soybean supply turns out to be lower than market expectations, 2) a more promising demand recovery story, 3) lower-than-expected palm oil production, and 4) significant reductions in production costs.

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