Top Palm Growers Seen Needing Tank Expansion to Draw Value

Indonesia and Malaysia, the world’s two biggest palm oil producers, need to construct more storage tanks to manage supply better in peak-output months, according to the Malaysian Palm Oil Council.

The countries must also add biodiesel plants to drain excess supply from the market, and more ships to deliver the oil to buyers, Chief Executive Officer Yusof Basiron told a conference in Kuala Lumpur today. Indonesia and Malaysia account for about 87 percent of global supply, according to data from the U.S. Department of Agriculture.

Yusof’s remarks reflect a desire to strengthen the industry’s infrastructure as governments and companies contend with record supplies and stockpiles, which have driven palm into a bear market. Indonesia needs to build more roads and ports to support its palm industry, including in Kalimantan on Borneo Island, the country’s palm oil association said last month. Palm futures tumbled 23 percent in 2012, dropping for a second year.

Palm producers have to control the flow of supply to maximize the value that the commodity is supposed to have, Yusof told the Palm and Lauric Oils Conference & Exhibition, arranged by Bursa Malaysia Bhd.

The so-called top lesson of last year must be the building of more tank capacity, James Fry, chairman of LMC International Ltd., said in November. The oil has to be produced every day as the fresh-fruit bunches from which it is crushed cannot be stored, he said. As a result, tanks fill every day and producers with high stockpiles act as distressed sellers, he said.

Price Target

Palm for May delivery declined 0.5 percent to 2,400 ringgit ($774) a ton on Bursa Malaysia Derivatives at the midday break in Kuala Lumpur. Prices may reach 2,500 ringgit to 3,200 ringgit a ton, Yusof said, without giving a timeframe.

While palm is produced year-round, output varies across the year. In Malaysia, supply typically peaks in about October or November, and then slumps to a low in the first quarter. Output in January was 1.6 million tons, 20 percent less than last September, according to data from the Malaysian Palm Oil Board.

Palm output in Malaysia will total 18.9 million tons in 2013, matching the biggest-ever crop in 2011, the board has forecast. Stockpiles in the country, which reached a record 2.63 million tons in December, stood at 2.58 million tons in January. Indonesia may harvest a record 30 million tons this year, Derom Bangun, chairman of that nation’s board, said on Feb. 18.

Malaysia can store 5.2 million tons of palm oil, Plantation Industries and Commodities Minister Bernard Dompok said Oct. 15. HwangDBS Vickers Research Sdn. had said in a report the same day that Malaysia may have run out of storage space.

Some palm producers in Kalimantan must ship output to Belawan and Dumai ports on Sumatra because of a lack of facilities, Fadhil Hasan, executive director at the Indonesian Palm Oil Association, said in Jakarta on Feb. 5.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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