KUALA LUMPUR, Aug 11 ― Malaysia will continue to see intense competition in the crude palm oil (CPO) market from Indonesia as the country will be flushing out its bloated inventory ahead of its seasonal peak production months.

Maybank Investment Bank Bhd (Maybank IB) said the three initiatives announced by Indonesia recently are likely to boost its exports at the expense of Malaysia's exports.

The Indonesian government announced that it will be raising its Domestic Market Obligation (DMO) requirement to 1:9 from 1:7, and has committed to reviewing its CPO reference price every two weeks instead of every month, as well as revising its export duty structure.

"As the August CPO reference price was also slashed to US$872.27 (RM3,879) per tonne, its export duty was drastically cut to US$52 per tonne from US$288 per tonne to help boost its exports.

"These measures are likely to boost Indonesia’s exports at the expense of Malaysia’s exports,” said Maybank IB in a note today.

Meanwhile, in a separate note, CGS-CIMB projected Malaysia’s palm oil stocks to rise by 13.5 per cent to 2.0 million tonnes by end-August 2022 due to the increasing competition from Indonesian exports.

"However, the August palm oil stock was below our forecast due mainly to higher-than-expected exports as Indonesia producers may have delayed exports in anticipation of lower export tax.

"We view the rise in palm oil stocks as neutral for CPO price as this has been largely expected by the market,” it said.

It added that Malaysia’s CPO price could trade in the RM4,000-RM5,000 per tonne range in August, and that the price could weaken due to stiffer competition from Indonesian palm oil and lower export tax in Indonesia.

"However, the downside will be capped by current CPO wide pricing discount of US$290-US$320 per tonne against soybean oil,” said CGS-CIMB.

It noted that Malaysia's palm oil stocks increased 7.0 per cent month-on-month and 18 per cent year-on-year to an eight-month high of 1.77 million tonnes in July 2022, driven by higher output and imports.

Concurrently, in a separate note, RHB Investment Bank Bhd (RHB) said while regulatory risks still exist, particularly for players in Indonesia, supply concerns will continue to haunt the sector for the rest of 2022, given the logistics backlog in Indonesia and the labour shortages in Malaysia.

"The CPO price decline could have been slightly overdone, having fallen by 44 per cent in seven weeks ― which is much more than the decline in soybean, crude oil and wheat prices (down by 31 per cent, 17 per cent and 16 per cent, respectively).

"That said, assuming these issues are resolved by end-2022, and if Ukraine is able to export its oilseed products as per the grains deal agreement signed, 2023 should continue to be a better year for supply and prices are likely to stay under pressure,” it noted.

Nonetheless, RHB has lowered its 2023 Malaysian CPO price assumptions to RM3,900 per tonne from RM4,300 previously.

Conversely, Hong Leong Investment Bank Bhd has continued to maintain its 2022 - 2024 Malaysian CPO price assumptions of RM5,500, RM4,500 and RM3,800 per tonne, respectively.

"While Indonesia’s move to flush out palm oil inventories will likely suppress near-term CPO price, the recent severe CPO price decline is overdone as supply prospects of major vegetable oil remains uncertain and demand prospects have turned more favourable on the back of palm oil’s improved price competitiveness, low inventory levels among major importing countries, and favourable palm oil-gas oil spread,” it said. ― Bernama