Palm Oil Recovery Seen Delayed as Stockpiles Gain to Record

Palm oil stockpiles in Malaysia that expanded to an all-time high last month, contrary to analysts’ expectations, may have set back an expected recovery in prices of the most-used cooking oil. Futures fell to a three-week low.

“With inventory continuing its climb, palm oil price recovery is further delayed,” Alvin Tai, an analyst at OSK Investment Bank Bhd., said in a report today after the Malaysian Palm Oil Board published December figures for reserves, output and exports yesterday.

Palm oil is mired in a bear market, losing 23 percent last year, as stockpiles expanded in Malaysia and Indonesia, while slowdowns in Europe and China hurt demand. Rabobank International, which in November picked palm oil as likely to be the best-performing farm commodity this year, said yesterday that prices will remain range-bound in the coming weeks.

“Stocks are more burdensome than market expectations,” Ivy Ng, an analyst at CIMB Group Holdings Bhd., said in a report today. “This may further delay the recovery in crude palm oil prices until stocks fall back to the 2 million ton mark.”

Reserves of the oil used in foods and fuels expanded 2.4 percent to an all-time high of 2.63 million tons last month, according to the board figures yesterday. That exceeded the median estimate for a decline in holdings to 2.53 million tons, according to a Bloomberg survey.

Three-Year Low

Palm oil fell for a second day, declining as much as 2.1 percent to 2,336 ringgit ($773) a ton on the Malaysia Derivatives Exchange, the cheapest since Dec. 21, and trading at 2,337 ringgit at 3:32 p.m. in Kuala Lumpur. The most-active price, which touched a three-year low of 2,217 ringgit on Dec. 13, has lost 28 percent over the past year.

Inventories in Malaysia may expand further to 2.66 million tons this month, keeping prices below 2,500 ringgit a ton for an extended period, Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd., wrote in a report today.

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.

Still, exports fell 25 percent to 373,462 tons in the first 10 days of January from 499,732 tons in the same period last month, Intertek said yesterday. Shipments dropped 34 percent to 343,081 tons, according to Societe Generale de Surveillance.

‘Too Mild’

Reserves may drop to 2.59 million tons this month as exports outweigh output, CIMB’s Ng wrote in the report. Last month, output fell 5.9 percent to 1.78 million tons, while exports eased 0.7 percent to 1.65 million tons, the board said.

The decline in December output was “too mild to halt the rise in stockpiles,” said OSK’s Tai. While the drop in the export duty to zero may have a positive impact on shipments, the effect may be seen only in a month or two, he said.

China, the biggest cooking oil user, imposed more stringent import checks on palm oil to improve food safety from the start of this year. 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.

“Palm oil demand from China may remain weak in the short term in view of record high stocks,” said Kenanga’s Lim. “In addition, winter in the northern hemisphere is peaking in January and causing palm oil usage to remain low.”

The tropical oil clouds in cooler temperatures. Production in Malaysia -- which totaled 18.8 million tons last year, near the 2011 record of 18.9 million -- is typically at a cyclical low in January and February each year.

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