Malaysia’s Palm Oil Reserves Seen Dropping Most in Two Years

Palm oil stockpiles in Malaysia probably fell the most in more than two years in March as exports from the world’s second-largest producer increased for the first time in five months. Futures gained.

Inventories declined 7 percent to 2.27 million metric tons from February, the steepest monthly drop since January 2011, the median of estimates from two plantation companies and four analysts showed. Output gained 2.3 percent to 1.33 million tons, while exports rose 2.1 percent to 1.43 million, the survey showed. Official data are due for release on April 10.

A decline in inventories for a third month may help stem a 33 percent slump in prices in the past year of the commodity used in everything from biofuels to candy to noodles. Futures may climb through May, trading between 2,400 ringgit ($785) and 2,700 ringgit a ton as Malaysia’s currency weakens before elections and inventories drop in Indonesia and Malaysia, the top producers, Dorab Mistry, a director at Godrej International Ltd., said March 22.

The fall in stockpiles “should be positive for prices,” said Arhnue Tan, an analyst at Alliance Investment Bank Bhd. “The decline in stockpiles could be mild because the exports numbers have not turned out to be very strong. So it will just be mild decreases over the next few months.”

The contract for delivery in June advanced 1.7 percent to 2,400 ringgit a ton on the Bursa Malaysia Derivatives, the highest price at close for most-active futures since March 28.

Rising Use

Exports may gain for the first time since October and will be 7.5 percent more than a year ago, according to the survey. Shipments rose 5.5 percent to 1.37 million tons last month from February, according to Societe Generale de Surveillance.

Palm oil’s use is poised to rise at an above-average pace in the six months through September on a price discount to other oils and fats amid expected record production, Oil World said April 2. Global production is forecast to climb 7 percent to 55.7 million tons in 2012-2013, the Hamburg-based researcher said. That compares with reduced availability for alternative oils in the six months ended last month, it said.

Palm’s discount to soybean oil was at $302.74 a ton today, higher than the five-year average of about $186, according to data compiled by Bloomberg. Palm and soybean oils are substitutes in food and fuel.

Global stockpiles will gain to a record 7.385 million tons this season, according to a projection from the U.S. Department of Agriculture. All-time high world production of 53.8 million tons will outpace demand of 52.4 million tons, the agency forecasts.

A bear market is set to deepen after August as futures drop below 2,000 ringgit once the low output season is over, according to Mistry. Output is typically lowest in the first two months of the year though it’s produced through the year.

Production probably climbed 9.9 percent in March from a year earlier, according to Bloomberg calculations based on the survey and data from the Malaysian Palm Oil Board.

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