Malaysia Palm Reserves Seen Falling to 2-Year Low on Ramadan

  • Inventory may drop for 6th month to smallest since June 2014
  • El Nino-induced tree stress curbing recovery in yields: IJM

Palm oil inventories in Malaysia probably shrank to the lowest in almost two years as demand rose ahead of Muslim festivals and the lingering effect of El Nino hindered a recovery in production.

Stockpiles fell 7.8 percent to 1.66 million metric tons in May from a month earlier, dropping for a sixth month to the smallest since June 2014, according to the median of 10 estimates in a Bloomberg survey of planters, traders and analysts. Output rose 3.8 percent to 1.35 million tons, slowing from a 17 percent gain in March, while exports climbed 14 percent to 1.32 million tons. The Malaysian Palm Oil Board will release official data by June 10.

Lower stockpiles in the second-biggest grower may boost prices as reserves in Indonesia, the top producer, also slumped amid demand during the Ramadan festival. Futures in Kuala Lumpur surged to a two-year high in March on concern El Nino-induced drought would tighten supplies. About 86 percent of the world’s palm oil is produced in Indonesia and Malaysia.

“In the next couple of months, exports should be better as buyers refill the pipeline that was emptied because of the Ramadan month and Eid al-Fitr festival,” said Purushothaman Kumaran, chief financial officer at IJM Plantations Bhd. “After Ramadan, everyone’s stocks will be low.”

Muslim Festivals

Ramadan, in which Muslim fast from dawn to sunset and eat heartily at night, will begin in the first week of June and will be followed by Eid al-Fitr celebrations in July. Festivals typically drive up consumption of the world’s most-consumed vegetable oil.

Futures touched 2,793 ringgit a ton on March 29, the highest since March 2014. The contract for August delivery gained 4.2 percent on Bursa Malaysia Derivatives last week, the most since February, and were trading 0.6 percent lower at 2,651 ringgit by the midday break on Monday.

Prices may trade between 2,500 ringgit and 2,900 ringgit in June as supplies tighten due to weaker-than-expected output, Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd., said in a June 1 note.

While Malaysian production in May rose from April, it should be 25 percent lower than last May, according to the survey. Output in Sabah, the country’s largest palm-growing state, would also be lower from a year earlier, although a recovery in yields was likely in May, said IJM’s Purushothaman.

‘Tree Stress’

Some planters’ production growth in Sabah will slow after August because of tree stress caused by El Nino, said Purushothaman. Harvesting activity may also slow this month as workers go on holiday for the festive season, he added.

Imports fell 25 percent to 50,000 tons in May, while estimates for domestic consumption ranged between 210,000 tons and 280,000 tons, according to the survey.

May 2016
(Survey)
   
April 2016
(MPOB)    
 May 2015
(MPOB)     
Output          1.35        1.30          1.81
Stockpiles          1.66        1.80          2.24
Exports          1.32        1.16          1.63
Imports           0.05        0.04          0.07

NOTE: Figures in million metric tons, based on the median of 10 estimates.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE