Palm Oil Reserves in Malaysia Gain to Record as Exports Drop

Palm oil stockpiles in Malaysia, the second-largest producer, advanced to a record in December, while exports extended their decline in the first 10 days of January even after a new tax regime took effect. Futures tumbled.

Inventories rose 2.4 percent to 2.63 million metric tons from November, the Malaysian Palm Oil Board said today, topping expectations in a Bloomberg survey before the data. Exports dropped 25 percent to 373,462 tons from a revised 499,732 tons in the first 10 days of December, surveyor Intertek said. Shipments retreated 34 percent to 343,081 tons in the same period, according to surveyor Societe Generale de Surveillance.

Futures slumped 23 percent last year as stockpiles expanded in Malaysia and in Indonesia, the biggest producer, and economic slowdowns in Europe and China curbed demand. Rabobank International has picked palm oil as probably the best-performing farm commodity this year as stockpiles are depleted.

“Demand is still not good,” said Chandran Sinnasamy, head of trading at LT International Futures Sdn. in Kuala Lumpur. “If you look at the first 10 days of January exports, it’s really bad, so the whole month could be worse.”

Palm oil for March delivery fell 1.2 percent to end at 2,383 ringgit ($787) a ton on the Malaysia Derivatives Exchange, the lowest close for the most active contract since Dec. 20. Futures touched 2,217 ringgit on Dec. 13, the cheapest intraday level since November 2009.

Lower Shipments

The increase in reserves was the sixth monthly gain, and more than the median estimate of 2.53 million tons in a Bloomberg survey. Output dropped 5.9 percent to 1.78 million tons in December, while exports declined 0.7 percent to 1.65 million tons, the board said. Production is typically at a cyclical low in January and February each year.

“For the first 10 days, the drop may have been because some ports may have been closed, or some people may not have been working, so we can’t really use this to gauge what exports are going to be like,” James Ratnam, an analyst at TA Securities Holdings Bhd., said by phone in Kuala Lumpur. “Production will be coming down and exports should benefit from the tax, so I do expect stocks to come down in January.”

The Malaysian government said in October it would cut the export tax to between 4.5 percent and 8.5 percent, from 23 percent, effective Jan. 1, to help reduce the reserves. The tariff this month was set at zero as the base price was below the 2,250 ringgit threshold that triggers the 4.5 percent rate.

China, the biggest cooking oil consumer, imposed more stringent import rules to improve food-safety standards from the start of this month. Palm oil inventory at major ports climbed to a record 1.1 million tons as of Jan. 7, according to the China National Grain & Oils Information Center.

“January may be a bit too soon to really see the impact,” said Hoe Lee Leng, an analyst at RHB Capital Bank Bhd. “People are not rushing off to export directly and take advantage of the zero percent tax for this month yet” as some planters may continue to sell to local refiners, she said.

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