Palm oil stockpiles in Indonesia, the top producer, probably fell in August to the lowest in 14 months as output had the second-biggest slump this year because of holidays, more than compensating for a drop in sales.
Reserves declined 6.4 percent to 2.2 million metric tons, the lowest level since June 2012, from 2.35 million tons in July, according to the median of estimates from four plantations executives and a refiner compiled by Bloomberg. Exports dropped for a third month by 0.6 percent to 1.58 million tons, while production fell 12.5 percent, the biggest drop since January, to 2.1 million tons, the survey showed.
Prices of palm, used in everything from candy to biofuel, are heading for a third year of decline as slowing growth in China and the European Union hurt demand. World stockpiles will reach a record by the end of 2013-2014 as production climbs to an all-time high and consumption expands the least in 12 years, the U.S. Department of Agriculture says. Domestic output, which accelerates in the second half because of growing cycles, fell last month because of a week-long holiday for the Eid festival.
“While daily production picked up last month, the Eid holiday kept monthly output lower,” said Hariyanto Wijaya, an analyst at PT Mandiri Sekuritas, a unit of the country’s biggest bank by assets. “Output will increase in September as that’s the cycle,” he said, without giving an estimate.
The Indonesian Palm Oil Association, which doesn’t publish production and inventory figures, may release export data this week. The forecast changes in reserves and output were derived by Bloomberg by comparison with earlier surveys. Eid marks the end of the Muslim fasting month of Ramadan.
Trees are in a more productive cycle which will last at least until April, Dorab Mistry, director at Godrej International Ltd., said in remarks prepared for a conference in Singapore on Sept. 12.
Global production will reach 58.1 million tons, boosting stockpiles to 9.2 million tons, while consumption expands 4.5 percent to 56.2 million tons, the USDA estimates.
Futures traded at 2,336 ringgit ($718) per ton on Bursa Malaysia Derivatives at 4:56 p.m. in Kuala Lumpur today, down 41 percent from an almost three-year high of 3,967 ringgit in February 2011. Prices rose the most since December 2010 in August as crude oil rallied to a two-year high, boosting demand for biodiesel. Palm oil resumed the decline last week amid concern weakening emerging market currencies will cut purchases.
Imports by India, the biggest palm oil buyer, declined for a second month in August as a slump in the rupee increased costs for refiners. The rupee dropped 8.1 percent against the dollar in August, the biggest monthly loss since 1992.
Depreciation of the Indonesian rupiah, which fell 13 percent this year, may boost incentives for exporters to increase shipments elsewhere, said Teguh Patriawan, president director of PT Nusantara Sawit Persada, a Jakarta-based plantation company. The Chinese yuan, currency of the biggest vegetable oil consumer, has appreciated 1.8 percent this year.
Palm oil prices may extend their decline as supply of the most-used cooking oil advance and biodiesel demand peaks, said Mistry who has traded vegetable oils for more than three decades.
“Biodiesel production possibilities until the end of calendar year 2013 are maxed out,” said Mistry. “It remains to be seen if new biodiesel capacity will be built in South East Asia at this juncture.”
Indonesia increased the blending rate for biodiesel in subsidized-diesel oil to 10 percent, or B10, this month from 7.5 percent, according to a regulation signed by Energy and Mineral Resources Minister Jero Wacik Aug. 28. The B10 mandate will be imposed for industrial users and B20, or 20 percent blending rate, for power plants starting January.
Higher biodiesel blending requirements will help boost domestic consumption, said Joelianto, trading director at PT Sinar Mas Agro Resources and Technology in Jakarta. Global use of palm oil for fuel may advance 11 percent to 6.34 million tons in 2013, according to Hamburg-based research company Oil World.