Palm Reserves in Malaysia Seen Lower in February on Output

Palm oil stockpiles in Malaysia, which held near a record in January, probably shrank by the most in 10 months in February as output declined in the second-largest supplier, according to a Bloomberg survey.

Stockpiles contracted 5.4 percent on month, the steepest drop since April, to 2.44 million metric tons, the median of estimates from two plantation companies and six analysts showed. Output fell 13 percent to 1.4 million tons, while exports dropped 7.4 percent to 1.5 million tons, the median of seven estimates showed. Official data are due for release on March 11.

Declining stockpiles may help to pave the way for a rebound in prices of the world’s most-used edible oil, which tumbled 23 percent last year as global supply reached a record. Dorab Mistry, a director at Godrej International Ltd., who’s due to address an industry conference in Kuala Lumpur tomorrow, has said palm’s outlook is bearish this year as global oilseed production increases, including soybean harvests in the Americas.

“Prices should gain some ground from here,” said Alvin Tai, an analyst at OSK Investment Bank Bhd. “The inventory cycle hits a trough in May or June, so this is the time for prices to strengthen.”

Palm for May delivery traded 0.4 percent lower at 2,404 ringgit ($775) a ton on Bursa Malaysia Derivatives at 3:33 p.m. in Kuala Lumpur. The Palm and Lauric Oils Conference & Exhibition, arranged by Bursa Malaysia Bhd., opened today. Yusof Basiron, chief executive officer of the Malaysian Palm Oil Council, told delegates at the gathering that prices may range from 2,500 ringgit to 3,200 ringgit a ton.

Tax Reform

Malaysia announced export-tax changes last year to try to reduce the inventories, which stood at 2.58 million tons in January after peaking at 2.63 million tons in December. The reform resulted in a zero tariff for January and February. Shipments will be taxed at a 4.5 percent rate this month.

Stockpiles remained high last month due to a drop in exports to China as inventory there is high, said Ben Santoso, an analyst at DBS Vickers Securities Pte in Singapore. While output is seen rebounding in March, exports will also pick up as demand for the oil, which clouds in cooler temperatures, recovers as the winter season ends, he said.

Palm inventory at ports in China, the largest cooking oil user, rose to a record 1.22 million tons, state-owned researcher said March 1. Shipments to China from Malaysia dropped 15 percent last month from January, an estimate from surveyor Societe Generale de Surveillance shows. Total exports declined 8.8 percent to 1.3 million tons, according to SGS.

UBS’s Outlook

Palm will gain as demand recovers and output in Malaysia and Indonesia declines, Sebastian Tobing and Bonny Setiawan, analysts at UBS AG, wrote in a report dated Feb. 26. Stockpiles were expected to drop to 2.4 million tons last month due to the seasonal slowdown in production, which may continue into the second quarter, they said.

Output of the oil, which is produced year-round, is typically lowest in the first two months of the year. Still, production last month was 18 percent higher than a year ago, according to Bloomberg calculations based on the projection in the survey and data from the Malaysian Palm Oil Board.

Demand for palm oil in 2013 may grow more than the usual annual rate of 4 percent to 5 percent as the low prices will boost consumption for energy purposes such as biofuels and burning in power plants, said OSK’s Tai.

Global stockpiles will gain to a record 7.203 million tons this season, according to a projection from the U.S. Department of Agriculture. Record global supply of 53.3 million tons will outpace demand of 51.8 million tons, USDA forecasts show.

Godrej’s Mistry told Bloomberg last month that palm probably will drop this year after producers boosted acreage and global oilseed supplies rose. Chris de Lavigne, at Frost & Sullivan, another speaker at the conference, said today that suppliers need to find new uses for palm to absorb the biggest-ever harvests.

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