TSH: Plantation Sector Navigates Rising Stockpiles Amid Mixed Performance
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Malaysia’s palm oil industry experienced a mixed performance in September 2025, characterized by an unexpected build-up in crude palm oil (CPO) stockpiles despite a slight month-on-month dip in production. The broader data for the month points towards a neutral-to-bearish undertone for CPO prices, driven by elevated stock levels and evolving demand dynamics.
Performance Review
CPO production in September saw a marginal decline of 0.7% month-on-month (MoM) to 1.84 million tonnes, although it registered a 1.1% year-on-year (YoY) increase. This slight reduction was primarily influenced by a 3.1% drop in yields in Peninsular Malaysia, which offset gains in East Malaysia (Sarawak +7.0% MoM, Sabah +4.3% MoM).
The most significant development was the unexpected rise in CPO stockpiles, which surged 7.2% MoM to 2.36 million tonnes. This figure exceeded market expectations for a decline and represented a substantial 17.3% YoY increase. The increase in stockpiles was largely attributed to higher imports and a notable decline in domestic usage.
Trade Dynamics
On the trade front, exports rose 7.7% MoM to 1.43 million tonnes in September but remained 8.5% lower YoY. In contrast, domestic usage plummeted sharply by 33.2% MoM, settling at 333,400 tonnes. Imports, meanwhile, jumped 34.0% MoM to 78,400 tonnes, well above last year’s levels. Year-to-date (YTD) figures show CPO production inched up 0.3% to 14.48 million tonnes, while exports declined 10.5% YoY to 11.04 million tonnes. Domestic usage surged 35.0% YoY, and imports expanded strongly, more than tripling to 672,000 tonnes YTD.
Future Outlook and Price Pressures
The confluence of rising stock levels, higher imports, and weaker domestic usage suggests a neutral-to-bearish outlook for CPO prices. The market also faces potential headwinds from increased competitiveness of soybean oil, especially with a sharp decline in U.S. soybean prices, and ongoing US-China trade tensions that could redirect soybean imports.
However, some mitigating factors are in play. CPO production is expected to remain supported in October due to seasonal factors and stronger harvesting activities before moderating towards year-end. Furthermore, strong biodiesel demand, consistent seasonal restocking, and tight supply conditions are anticipated to help cushion any downside, potentially preventing a steep correction in CPO prices. Early October data from cargo surveyors indicates an increase in palm oil shipments, suggesting some continued demand.
Investment Perspective
Despite the broader complexities and a maintained ‘Neutral’ stance on the overall Plantation sector by TA Securities, specific opportunities exist within the market. While the sector navigates a challenging environment with rising stockpiles and price pressures, companies demonstrating robust operational efficiencies, strategic positioning, or strong demand for their specific products could offer significant upside potential to investors.
