Palm Oil Reserves in Malaysia Seen Climbing as Exports Drop

Palm oil stockpiles in Malaysia probably jumped to the highest level in eight months as exports from the world’s second-biggest producer declined for the first time since May, a Bloomberg survey showed. Futures fell.

Inventories expanded 6.2 percent to 1.96 million metric tons in November from a month earlier, according to the median of six estimates from a plantation company, analysts and traders. That’s the highest since March and 24 percent less than a year earlier, according to data from the Malaysian Palm Oil Board, which may release official data on Dec. 10. Exports dropped 5.4 percent to 1.57 million tons, while output fell 2.6 percent to 1.92 million tons, the survey showed.

Palm oil rallied into a bull market last month and is heading for the first annual advance in three years on speculation that output from top producer Indonesia may drop for the first time since 1998. Lower supplies and Indonesia’s push for higher biodiesel usage will keep prices between 2,600 ringgit ($808) to 2,900 ringgit a ton until March, according to Dorab Mistry, director at Godrej International Ltd.

“Prices will be supported at these levels because although inventories are higher, this should be the peak,” said Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd. “The increase in stockpiles was because of the drop in exports due to a lack of major festivals in the near term and also the colder weather in the Northern Hemisphere.”

Seasonal Decline

Reserves will decline in December as production drops seasonally, Lim said. Output of the oil used in everything from candy to biofuels is typically highest from June to October and tapers off from November due to growing cycles.

Futures climbed 8.3 percent this year to 2,641 ringgit on the Bursa Malaysia Derivatives in Kuala Lumpur after slumping a combined 36 percent in the past two years. Prices rallied to 2,692 ringgit on Nov. 22, the highest since September 2012.

Indonesian output will decline by 500,000 tons to 27.5 million tons this year, before rebounding to 30.5 million tons in 2014, Mistry told a conference in Bandung, Indonesia, on Nov. 29. The retreat this year would be the first drop since 1998, according to data from the U.S. Department of Agriculture. Production in Malaysia will climb to 19.4 million tons this year from 18.8 million in 2012, said Ivy Ng, an analyst at CIMB Investment Bank Bhd.

“Stockpiles are still much lower than a year ago and it’s still below the 2 million-ton mark,” Ng said. “We are at the end of the high production season, so people won’t be too worried about the higher stock situation.”

Output Drops

Stockpiles in Malaysia have stayed below 2 million tons since April after reaching a record of 2.63 million tons in December last year. Imports were at 20,000 tons last month, unchanged from October, according to the median of five estimates. Output totaled 17.6 million tons in the first 11 months, according to official data for the first 10 months and the median estimate for November. That compared with 17 million tons a year earlier, board data showed.

Exports may have fallen due to the narrowing discount to soybean oil as consumers switch to the substitute, Ng said. The spread was at $67.42 a ton on Dec. 4, compared with the average $257 this year, data compiled by Bloomberg shows.

      Nov. 2013 (Survey)   Oct. 2013 (MPOB)   Nov. 2012 (MPOB)
Output          1.92               1.97               1.89
Stockpiles      1.96               1.85               2.57
Exports         1.57               1.66               1.66
Imports         0.02               0.02               0.08
Figures are in millions of tons.