Palm-oil stockpiles in Malaysia, the world’s second-largest producer, jumped to a record as a surge in output and an economic slowdown in China and Europe weakened demand for the commodity used in food and biofuel.
Inventories jumped 17.4 percent to 2.48 million metric tons in September from a revised 2.11 million tons in August, the Malaysian Palm Oil Board said in a statement today. That is higher than the median estimate of 2.43 million tons in a Bloomberg survey last week and surpassed the previous all-time high of 2.27 million tons in November 2008. Output surged 20 percent to 2 million tons, a monthly record, while exports rose 4.5 percent to 1.51 million tons.
Rising supplies may pressure futures which plunged to the lowest level in almost three years in Kuala Lumpur last week as a deepening economic slowdown hurt demand. Stockpiles will continue to expand in October, November and December and may reach as high as 3 million tons by January, Dorab Mistry, director at Godrej International Ltd., said Sept. 23.
“This is definitely going to weigh on prices,” Abah Ofon, an analyst at Standard Chartered Plc, said by phone from Singapore today. “Policy makers in Malaysia are a little bit more proactive with regards to trying to mop up some of this inventory. This is going to limit the downside.”
Malaysia’s Plantations Industries and Commodities Minister Bernard Dompok today said that the cabinet had agreed to review the export tax structure for crude palm oil and the country will work with Indonesia to stabilize prices. The extent of the cut has yet to be decided, said Dompok, who will present to the cabinet a proposal on Oct. 12. He proposed a cut to between 8 percent and 10 percent from 23 percent on Oct. 3. Indonesia reduced taxes last year to boost shipments of processed oil, increasing competition for Malaysia.
Palm oil for December delivery gained 0.8 percent to 2,457 ringgit ($799) a ton on the Malaysia Derivatives Exchange, the highest price at close for the most-active contract since Oct. 1. Futures dropped 5.2 percent last week after falling on Oct. 2 to the lowest close since November 2009.
“I would expect to see demand coming back in strongly at these levels,” said Ofon. “With Indonesia now such a fierce competitor, the issue whether demand actually goes into Malaysia is arguable, a lot of that demand may just actually veer off to Indonesia instead.”
Malaysian output may increase this month before declining sharply as the high production season ends, Ofon said. Output typically peaks between July and October, before tapering off from November onwards.
Exports from Malaysia fell 1 percent to 448,624 tons in the first 10 days of October from 453,302 tons in the same period in September, surveyor Intertek said.