Palm oil inventories in Indonesia, the world’s largest supplier, probably declined in October to the lowest level in 16 months as rain disrupted production and exports gained, boosting the outlook for prices.
Reserves shrank 8.5 percent to 2.04 million metric tons from 2.23 million tons in September, and compared with 2.6 million tons a year earlier, according to the median of estimates from five plantation executives, traders and refiners compiled by Bloomberg. That’s the lowest since 1.85 million tons in June 2012. Exports rose 3.7 percent to 1.7 million tons and output was unchanged at 2.4 million tons, the survey showed.
Futures in Kuala Lumpur entered a bull market this month and are heading for their first annual gain in three years on speculation that production in top producers Indonesia and Malaysia is trailing analysts’ estimates. Output of the oil, used in everything from candy to cosmetics, is typically highest from July to October. Stockpiles in Indonesia may drop through the fourth quarter on lower-than-expected production, according to Wilmar International Ltd. (WIL), the world’s top palm oil trader.
“Refineries are scrambling for palm oil,” said Sahat Sinaga, executive director at the Indonesian Vegetable Oil Industry Association. “Inventories may drop further in November to about 1.8 million tons and that may boost prices.”
The Indonesian Palm Oil Association, or Gapki, which doesn’t publish inventory and production data, may release October export figures next week. The forecast for changes in output and reserves were derived from earlier survey findings.
The stockpile prediction by Sinaga would be the lowest compared with the medians in the surveys that started in May 2012, and would be 49 percent less than a record 3.5 million tons in January.
Futures advanced 6.6 percent this year to 2,600 ringgit ($809) a ton on the Bursa Malaysia Derivatives today. Prices reached 2,628 ringgit on Nov. 1, the highest close since September 2012 and 21 percent more than the 2,167 settlement on July 29, meeting the common definition of a bull market.
“The uptrend in prices has just started” and will last at least through January, said Hariyanto Wijaya, an analyst at PT Mandiri Sekuritas, a unit of PT Bank Mandiri, Indonesia’s biggest lender by assets. Prices usually reach their lowest in October when production peaks and then start to climb as supplies drop, he said in a report dated yesterday.
Several major plantations in Indonesia said that output unexpectedly fell 7 percent to 10 percent in the first 10 months because of excessive rain and the growing cycle, according to Derom Bangun, chairman of the palm oil board, on Oct. 30. The board may cut its production estimate when it gets November data, he said. The group lowered its forecast to 26.7 million tons to 27 million tons on Sept. 30 from 28 million tons. Output was 25.7 million tons in 2012.
A decline in production would contrast with the U.S. Department of Agriculture’s prediction for a record 31 million tons in 2013-2014. Output may exceed 25 million tons this year, Agriculture Minister Suswono said Nov. 8.
Wilmar’s production of crude palm oil dropped 8 percent to 473,833 tons in the third quarter as output of fresh fruit bunches fell 10 percent, the Singapore-based company said last week. About 75 percent of its supplies come from Indonesia.
PT Astra Agro Lestari (AALI), the country’s largest listed plantation company by market value, had a 7.1 percent decline in production of fresh fruit bunches in the first nine months, it said Oct. 28. PT Perusahaan Perkebunan London Sumatra Indonesia (LSIP) reported a 17 percent drop and PT Sampoerna Agro had a 29 percent decrease.
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