Palm Oil Stockpiles in Malaysia May Drop to Five-Month Low

Palm oil inventory in Malaysia, the world’s second-biggest supplier after Indonesia, probably declined to a five-month low in January after production fell for a third month, according to a Bloomberg News survey.

Stockpiles fell 2.4 percent to 1.99 million tons, dropping below the 2 million-mark for the first time since August, according to the median estimate in a survey of three analysts and two plantation companies. Inventories were 1.42 million tons a year earlier, according to the Malaysian Palm Oil Board, which is scheduled to publish its estimates on Feb. 10.

Declining reserves may help futures in Malaysia reverse a monthly decline in January, and potentially boost profits at companies including Sime Darby Bhd., the world’s biggest publicly traded palm-oil producer. Credit Suisse Group raised its forecast of average palm oil prices for 2012 by 28 percent to 3,200 ringgit ($1,060) a ton in a report on Feb. 1, saying supplies will be capped, while demand remains strong.

“Stock levels should decline because exports are still slightly stronger than production,” Arhnue Tan, vice president at Alliance Research Sdn., said in an e-mail. Production will drop “due to some holidays during the month of January and due to the general seasonal downcycle.”

Output fell 13 percent to 1.3 million tons, the lowest since February last year, from 1.49 million tons in December, according to the survey. Exports may drop 15 percent to 1.35 million tons, the biggest decline since August 2010, the survey showed. Shipments fell 12 percent to 1.32 million tons in January from a month earlier, surveyor Intertek said Jan. 31.

Export Trends

“Most people are looking forward to the export-data trends for February with the hope that there will be some recovery in demand, because if demand is weak there will be concern that stocks will stay high even during the lean-production period,” Ivy Ng, an analyst at CIMB Group Holdings Bhd., said by phone from Kuala Lumpur. “Unless demand picks up, there’s nothing really to spur the outlook for prices.”

The April-delivery contract gained as much as 1.3 percent to 3,126 ringgit a ton on the Malaysia Derivatives Exchange today, the biggest advance for a most-active contract in five weeks. Futures fell 3.1 percent last month after reaching a six-week high of 3,244 ringgit on Jan. 3.

Sime Darby shares climbed 2.3 percent to 9.68 ringgit at 11:22 a.m. on the benchmark FTSE Bursa Malaysia KLCI Index, set for the highest close since May 2008.

Weather Concerns

Output in Malaysia, will reach 19 million tons this year as more plantations mature, Plantation Industries and Commodities Minister Bernard Dompok said Jan. 19. Production gained 11 percent to 18.9 million tons in 2011 from a year earlier, according to data from the nation’s board.

Futures may trade in a range of 3,000 ringgit to 3,300 ringgit a ton this month as prices would still be supported by concerns that dry weather in South America may damage the soybean crop, CIMB’s Ng said. Palm oil and soybean oil are substitutes in food and fuel uses.

The U.S. Department of Agriculture may lower its output forecast for Brazil, the second-largest soybean producer after the U.S., to 71.76 million tons from a January prediction of 74 million tons, according to the average estimate of 22 analysts surveyed by Bloomberg News. The outlook for the harvest in Argentina may be lowered to 48.58 million tons from 50.5 million tons, the survey shows. The agency is set to release its latest supply outlook tomorrow.

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