Palm Oil Inventories in Malaysia Drop Most in Two Years

Palm oil stockpiles in Malaysia, the world’s second-largest producer, fell the most in more than two years to a seven-month low in March as exports gained for the first time in five months, according to official data.

Inventories shrank 11 percent to 2.17 million metric tons last month from 2.44 million tons in February, the steepest monthly drop since January 2011, the Malaysian Palm Oil Board said today. The decline exceeded the median estimate for a 7 percent drop to 2.27 million tons in a Bloomberg survey. Output climbed 2.2 percent to 1.33 million tons, while exports increased 10 percent to 1.54 million tons, the board said.

The decline in stockpiles of the commodity used in everything from biofuels to candy to noodles may help stem a 34 percent slump in prices in Kuala Lumpur in the past year. Futures may climb through May, trading between 2,400 ringgit ($792) 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.

“I would perceive this as bullish data because the end-stock is actually lower than market expectations,” said Ryan Long, vice president of futures and options at OSK Investment Bank Bhd. in Kuala Lumpur. “Production is still quite slow, especially in East Malaysia, so I wouldn’t expect stocks to build up yet at the end of this month.”

Reserves may remain near 2 million tons in the next two months, Long said. Shipments probably jumped in March as buyers such as India and China replenished stockpiles, he said.

Exports from Malaysia gained 3.5 percent to 456,440 tons in the first 10 days of this month from 441,025 tons in the same period in March, surveyor Intertek said today.

Palm oil for June delivery dropped 1 percent to close at 2,371 ringgit a ton on the Bursa Malaysia Derivatives exchange. Prices could rally as high as 2,520 ringgit in the next two weeks, Long said.