Palm Reserves in Malaysia Set to Drop From Record on Output

Palm oil reserves in Malaysia, the biggest producer after Indonesia, probably fell for the first time since June as output plunged by the most in two years, according to a Bloomberg survey.

Stockpiles of the oil used in food and biofuels decreased 3.8 percent to 2.53 million metric tons in January from a record 2.63 million tons a month earlier, according to the median of estimates from four analysts and two plantation companies. Production slumped 15 percent, the most since December 2010, to 1.51 million tons, while exports dropped 7.9 percent to 1.52 million tons, the median of five estimates shows. The Malaysian Palm Oil Board is due to release the data on Feb. 13.

Inventories in Malaysia and Indonesia climbed last year as production outpaced demand, pushing down prices by 23 percent, the most since 2008. While stockpiles may have peaked, the price may not advance much, according to Rabobank International. Dorab Mistry, who has traded the oil for three decades, says prices probably already passed their highs and will decline in the second half as supplies expand.

“We’re not looking at any big jump in prices for the moment,” Pawan Kumar, Rabobank’s associate director of food and agribusiness research and advisory, said by phone from Singapore. Futures may trade in a range of 2,500 ringgit ($807) to 2,600 ringgit a ton next month, which will help cut reserves, he said.

Three-Year Low

Palm for April delivery ended at 2,547 ringgit on the Malaysia Derivatives Exchange, the lowest price at close for the most-active contract since Jan. 30. Futures have recovered 15 percent after slumping to 2,217 ringgit on Dec. 13, the lowest level since November 2009.

Malaysia announced export tax changes last year to reduce inventories, resulting in a zero tariff for January. The same rate was extended to February and may remain the same in March if prices stay below the threshold of 2,250 ringgit, according to Plantation Industries & Commodities Minister Bernard Dompok.

Indonesia raised export taxes to 9 percent in February from 7.5 percent. The country’s reserves probably rose to 3.5 million tons in January from 3.25 million tons in December, according to a Bloomberg survey last month.

The median estimate for Malaysian output in the latest survey was 17 percent higher than 1.29 million tons produced in January 2012, board data show. That should keep the inventory level above 2 million tons through the first quarter, which will “limit the upside,” Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd., wrote in a report yesterday.

High Stockpiles

Production in February should decline further, Kumar said. Lower output will draw down inventories, with steeper falls seen in February and March, Sebastian Tobing, an analyst at UBS AG in Indonesia, said Jan. 31. Production is typically lowest in the first two months of the year.

Standard Chartered Plc cut the average price forecast for 2013 to 2,688 ringgit from 2,825 ringgit, analyst Abah Ofon wrote in a report this week, citing “large” stockpiles.

Palm will drop below 2,200 ringgit in August or earlier, amid a worldwide glut of edible oils, according to Mistry, director at Godrej International Ltd. Global production of nine oils tracked by the U.S. Department of Agriculture including palm, peanut and soy will expand to a record 157 million tons this year, the agency estimates.

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