Malaysia can store 5.2 million metric tons of palm oil, according to Plantation Industries and Commodities Minister Bernard Dompok, puncturing speculation that capacity may be fully used after holdings advanced to a record.
“Although prices have not been upbeat over the last few weeks, demand remains strong,” Dompok told a conference in Kuala Lumpur today, before giving the storage-capacity estimate in a press conference, citing the Malaysian Palm Oil Association. That figure is more than twice the reserves held last month.
Palm oil has tumbled 23 percent this year as slowdowns in Europe and China curbed growth in overseas demand for the edible oil. HwangDBS Vickers Research Sdn. said that Malaysia may have run out of available storage space in a report to clients today that analyzed export-tax changes announced by Dompok last week. Production in Malaysia last month was the highest ever.
“We believe there may not be any spare storage capacity,” HwangDBS said in the report. The tax announcement on Oct. 12, which will take effect from Jan. 1, “did not mention how the government intends to address the issue of record palm-oil inventory in the interim,” it said.
Reserves of palm oil increased to the all-time high of 2.48 million tons last month, according to data from the Malaysian Palm Oil Board. That was the third straight increase in monthly holdings, and 46 percent above the level in June. Production was 2 million tons, a monthly record, according to board data.
“The point is not whether there’s enough storage, the point is if there’s enough demand,” said Hoe Lee Leng, an analyst at RHB Capital Bhd., who described the 5.2 million ton figure for total stockpile capacity as a surprise as it’s higher than she had previously thought. Demand for palm oil has declined in line with the global slowdown, she said.
Dompok said Oct. 12 that the government will cut the export duty on the crude variety and abolish a duty-free shipment quota from 2013. The new rates will range from 4.5 percent to 8.5 percent, rising as prices climb from 2,250 ringgit ($734) a ton to 3,600 ringgit. The existing rate is 23 percent.
Palm oil for December delivery fell 2.7 percent to 2,432 ringgit a ton on the Malaysia Derivatives Exchange at 5:44 p.m. in Kuala Lumpur. Last month, futures dropped 16 percent, the biggest drop since October 2008. The most-active price touched 2,230 ringgit on Oct. 3, the lowest level since November 2009.
The export-tax changes announced in Malaysia may be negative for planters as they may get a lower average selling price, while they may benefit refining companies, according to HwangDBS. The issue of remaining space “is urgent as there may not be any spare storage capacity,” it said.
The planned changes should have been introduced immediately “as the palm-oil inventory is already at record high levels,” OSK Investment Bank Bhd. said in a report dated today. The sliding scale of rates made sense as it will encourage exports if prices are low, helping to keep inventory in check, OSK said.
Reserves in Malaysia may reach 3 million tons by January, according to a forecast on Sept. 23 from Dorab Mistry, a director at Godrej International Ltd. The country’s output may be 18 million tons this year, he said then. The commodity is used in foods and biofuels.
In Indonesia, the largest producer, there is storage capacity for about 4 million tons, Deputy Trade Minister Bayu Krisnamurthi told reporters on Oct. 12. Of that total amount, about 70 percent to 75 percent is being used, Krisnamurthi said.
“It is important to maintain adequate supply of edible oils for the world market at affordable prices,” Minister Dompok told the conference. “I am optimistic that palm oil is poised to meet this challenge.”
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