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Palm Oil Inventories Seen Dropping as Production Declines

Palm Oil Plant
A smallholder checks on his truck loaded with oil palm fruit at the Felda Global Ventures Holdings Bhd. palm oil plant in Besout, Perak, Malaysia. Photographer: Goh Seng Chong/Bloomberg

Palm oil stockpiles in Malaysia, the world’s second-biggest supplier, probably declined for the first time in four months as production tumbled the most since February, a Bloomberg survey showed.

Inventories fell 3 percent to 1.92 million metric tons in December from a month earlier, according to the median of seven estimates from plantation companies, analysts and traders. That would be the first drop since August and 27 percent less than a year earlier, according to the Malaysian Palm Oil Board. Output fell 10 percent to 1.67 million tons from a month earlier and was 6.2 percent below December 2012, the survey showed. The board publishes the data on Jan. 10.

Palm oil, used in everything from candy to biofuel, posted its first advance since 2010 last year on speculation that output from Indonesia, the largest producer, may drop for the first time since 1998. Less supply and increasing use in biodiesel will probably keep prices between 2,600 ringgit ($791) to 2,900 ringgit a ton on the Bursa Malaysia Derivatives in Kuala Lumpur, according to Dorab Mistry, director at Godrej International Ltd. Futures ended at 2,561 ringgit today.

“We’re expecting only a mild drop in inventories on the back of lower production and some domestic disappearance for general consumption or for biodiesel production,” said Arhnue Tan, an analyst at Alliance Investment Bank Bhd. “The drop in stockpiles should continue as production should be lower on a year-on-year basis,” she said in a phone interview last week.

Exports, Imports

Futures climbed 9.1 percent in Kuala Lumpur last year after slumping a combined 36 percent in the past two years. The contract for March delivery fell 1.7 percent today, sliding for a fourth day. Prices will continue to trade between 2,500 ringgit and 2,800 ringgit in the next couple of months given the gradual drop in stockpiles, said Tan.

Inventories in Malaysia remained below 2 million tons from April after reaching a record 2.63 million tons in December 2012, board data show.

Exports fell 2.6 percent to 1.48 million tons from a month earlier and were 10 percent below a year ago, the survey showed. Shipments slid 1.1 percent to 1.43 million tons in December from a month earlier, according to Intertek. They dropped 3.3 percent to 1.42 million tons, SGS (Malaysia) Sdn. estimates.

Imports were 20,000 tons last month, 33 percent more than November and 78 percent less than a year earlier, according to the median of five estimates.

      Dec. 2013 (Survey)   Nov. 2013 (MPOB)   Dec. 2012 (MPOB)
Output          1.67               1.86               1.78
Stockpiles      1.92               1.98               2.63
Exports         1.48               1.52               1.65
Imports         0.02               0.015              0.09
Figures are in millions of tons.

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