JAKARTA: Exports came in stronger than expected with 6% growth month-on-month (m-o-m) as the temporary suspension of crude palm oil (CPO) export tax price effective Jan 8, 2018 boosted demand from major consumers such as India and Pakistan. Against last month, inventory level declined by 7% as export grew by 6% while production declined by 13.5%. We gather that exports to India jumped 35% m-o-m to 202,000 tonnes while exports to Pakistan were up by 20% to 101,000 tonnes. We believe that these price sensitive countries have increased their purchase to benefit from the recent suspension of CPO export tax by the Malaysia government.
Palm oil production declined 13.5% m-o-m but was up 25% year-on-year to 1.59 million tonnes in January. This confirmed our belief that production has peaked in October and the trend of seasonal production decline has resumed in January. Going forward, we expect February production to decline by 10% to 1.43 million tonnes. Overall, we are positive about CPO prices as the latest inventory data came in below market expectation. We believe that demand will continue to be supported by improved global demand as the winter has ended in the Northern Hemisphere. This should lead to higher usage of palm oil. We maintain our palm oil price forecast of RM2,900 per tonne for 2018 and reiterate a positive view of the sector due to improved demand outlook for palm oil in 2018. We believe that good economic growth in 2018 should lead to higher consumption per capita.
On the supply side, consensus estimate of huge supply growth may not be fully realised due to an ongoing labour shortage and the high replanting activity in Indonesia. Note that Indonesia plans to replant up to 165,000ha of oil palm plantation land this year.
