Malaysia Palm Reserves Seen at 6-Month Low as El Nino Bites

Tour of Felda Global Ventures Holdings Palm Oil Facilities

The lagged effects of “unfavorably” dry weather last year has been reflected in significantly reduced palm yields in several parts of Malaysia and Indonesia in December and January.

Photographer: Goh Seng Chong/Bloomberg
  • Inventory may drop to 2.33 million tons, lowest since July
  • El Nino-linked dry weather curbs output in Malaysia, Indonesia

Palm oil stockpiles in Malaysia probably declined to the lowest since July after El Nino-induced dry weather reduced production in the world’s second-largest grower.

Inventories slid 11 percent to 2.33 million metric tons in January from a month earlier, according to the median of 8 estimates in a Bloomberg survey of planters, traders and analysts. The drawdown would be the steepest in a year, according to Malaysian Palm Oil Board data compiled by Bloomberg. Output dropped 15 percent to 1.19 million tons, the lowest since February, and exports were about 9 percent lower at 1.35 million tons. The board will release official data by Feb. 10.

Lower supplies may support a rally in futures, countering weaker demand from key buyers such as China. Prices surged to a 20-month high this month as delayed effects from El Nino that scorched Southeast Asia, the top grower, curbed yields amid a seasonal drop in output. The adverse impact of the weather event should help palm outperform among soft commodities, BMI Research said in a Feb. 3 report.

“There is clearly strong concern on output,” said Marcello Cultrera, a dealer at Oriental Pacific Futures Sdn. in Kuala Lumpur. “The market is not looking at lower Chinese demand as a lid on prices. Between now and March, prices can reach 2,600 ringgit-2,700 ringgit.”

Rallying Futures

Futures in Kuala Lumpur rose as much as 1.7 percent to 2,574 ringgit ($621) a ton, the highest since May 2014, and traded at 2,571 ringgit by 11:39 a.m. local time. Prices are up 3.5 percent this year after climbing about 10 percent last year.

The lagged effects of “unfavorably” dry weather last year has been reflected in significantly reduced yields in several parts of Malaysia and Indonesia in December and January, according to Oil World. Global palm oil production will increase only 400,000 tons this year, compared with the five-year average of 3.2 million tons, the Hamburg-based researcher estimates.

Production is likely to be lower in February due to the post-drought effect and shorter harvest days, Hiro Chai, associate director at CIMB Futures Sdn., said in a Feb. 2 note. Sabah, Malaysia’s top palm-growing state, will see below-average rainfall and dry weather will continue until March, he said.

Drought Effects

In Indonesia, the biggest producer, the effects of El Nino-linked drought between May and October should manifest in the first quarter of this year, RHB Securities Indonesia analyst Hariyanto Wijaya wrote in a Feb. 3 report.

Prices may rise to 2,700 ringgit on a three-month horizon, while “lackluster” demand outlook amid low oil prices and ample alternative oilseed supply will cap a rally at that level, BMI forecast in the Feb. 3 report.

Exports from Malaysia fell about 10 percent to 1.15 million tons in January from a month ago, according to cargo surveyors Intertek Testing Services and Societe Generale de Surveillance. Imports were probably steady at 80,000 tons last month, while domestic consumption ranged between 190,000 tons and 260,000 tons, according to the Bloomberg survey.

Jan. 2016 (Survey)
    
Dec. 2015 (MPOB)     Jan. 2015 (MPOB)     
Output          1.19        1.40          1.16
Stockpiles          2.33        2.63          1.76
Exports          1.35        1.48          1.19
Imports           0.08        0.08          0.09

NOTE: Figures in million metric tons are based on the median of 8 estimates

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