Palm Reserves in Indonesia Seen Falling to Lowest in a Year

Palm oil inventories in Indonesia, the world’s largest producer, probably dropped in June to the lowest level in a year as domestic consumption and exports gained to meet increased demand for the Muslim month of Ramadan.

Stockpiles contracted 7.7 percent to 2.4 million tons from May, the median of estimates from five plantation executives and a refiner compiled by Bloomberg showed. That’s the lowest since 1.85 million tons estimated in June 2012. Shipments rose 2.2 percent to 1.86 million tons compared with May, the median showed. Output gained 19 percent to 2.38 million tons from May, according to the median of five estimates.

Palm oil has lost 27 percent in Kuala Lumpur over the past year as supply of the commodity used in everything from cooking oil to biofuel outpaced demand. Reserves in Malaysia, the second-largest producer, dropped to lowest level in two years in June as output in the country’s biggest-producing state fell.

“Domestic consumption is increasing,” said Derom Bangun, chairman of the Indonesian Palm Oil Board. “I think exports marginally increased after a surge in May and, as stockpiles in India are also quite high, they’re adjusting imports with the reserves that they have.”

Communal meals during the fasting month of Ramadan, which started on July 10 in Indonesia this year, typically boost total palm demand. The Southeast Asian nation is the world’s most populous Muslim country.

Lower Prices

Palm oil futures dropped 1.2 percent to end at 2,273 ringgit ($712) a ton on Bursa Malaysia Derivatives today, the lowest price at close for most active futures since May 7.

The Indonesian association, which doesn’t publish output and inventory figures, may release export data this week after saying June 19 that shipments climbed 22 percent in May. The forecasts for changes in reserves and production in June were derived by Bloomberg compared with earlier survey findings.

Second-quarter consumption in Indonesia expanded 11 percent compared with the first quarter, said Sahat Sinaga, executive director at the Indonesian Vegetable Oil Industry Association. Local demand was also driven by biodiesel use, he said.

Exports “may increase in July and August as rising crude oil prices will boost biofuel demand,” Bangun said. “It’s price-supportive. I’m optimistic palm oil will rise gradually.”

West Texas Intermediate crude climbed to 15-month high of $107.45 a barrel in New York on July 11. Futures have advanced 15 percent this year.

Inventories in Malaysia fell 9.4 percent to 1.65 million tons in June from May, the lowest level since March 2011, the country’s palm board said July 10. That was less than the median estimate of 1.75 million tons in a Bloomberg survey. Output rose 2.3 percent to 1.42 million tons, while exports gained 0.3 percent to 1.41 million tons.

India’s cooking oil stockpiles were 1.98 million tons on June 1 from 1.69 million tons a year earlier and a record 2.12 million tons in March, according to the Solvent Extractors’ Association of India.

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