Malaysia's palm oil production continued its upward momentum in August 2024, with output rising by 2.9% month-on-month (MoM) to 1.89 million tonnes. This marks an 8% year-on-year (YoY) increase, though the growth was hampered by declines in production from Sabah and Sarawak. Additionally, crude palm oil (CPO) prices saw a slight reduction, settling at RM3,900 per metric tonne, driven by ongoing supply risks. Analysts are maintaining a NEUTRAL outlook on the sector, with average CPO prices forecasted at RM3,800 per metric tonne for the remainder of the year.

All analysts share a consensus view, with calls to maintain a NEUTRAL stance on the sector. MIDF Stock Broking House recommends buying IOI Corporation (target price: RM4.50) due to strong upstream growth and profitability in its downstream operations. Other top picks include Ta Ann Holdings, with favourable prospects tied to CPO price movements, and Sime Darby Plantation, which is well-positioned for future growth. Analysts also note that stockpile levels, currently at 1.88 million tonnes, may increase further due to weakening exports and increased production during the peak fruiting season.

In August, stock levels decreased by 10.8% YoY due to an uptick in exports, particularly to China and India, as their refiners took advantage of palm oil's competitive pricing relative to rival oils like soybean oil. The spread between palm oil and soybean oil narrowed significantly, benefiting palm oil exports. This was further supported by active restocking by the food and oleochemical industries, in preparation for festivals in China and India.

Looking ahead, the market anticipates a peak crop period for Indonesia, which has been delayed until the fourth quarter. This could lead to increased supply pressure on CPO prices. Additionally, La Niña's delayed development, expected between September and November, may positively impact production levels, reversing the earlier effects of El Niño.