Palm Inventories in Malaysia Seen Dropping to Five-Month Low

Palm oil stockpiles in Malaysia, the world’s biggest grower after Indonesia, probably tumbled last month to the lowest level since September as production declined to a one-year low, a Bloomberg survey showed. Futures climbed to the highest level since 2012.

Inventories fell about 7 percent to 1.8 million metric tons from 1.93 million tons a month earlier, according to the median of five estimates from plantation companies, analysts and traders. Output slumped 13 percent to 1.31 million tons, the lowest level since February 2013, while exports slid 6.6 percent to 1.28 million tons, the survey showed. The Malaysian Palm Oil Board publishes the data on March 10.

Production dropped 19 percent in February last year from the previous month and output for that month fell in eight of the past 10 years, according to board data. While the weather has been dry for about five weeks, yields will only slip in the third quarter, says James Fry, chairman of LMC International Ltd. Reserves are set to slide for a second straight month.

“The ending stockpiles have been on a downtrend since December and are expected to fall further till May or June,” said Chandran Sinnasamy, head of trading at LT International Futures Sdn., from Kuala Lumpur. “Exports may be maintained or perform better in February-April as buyers start stocking up for Ramadan.” Communal meals during the fasting month, which starts at the end of June in Indonesia, typically boost demand.

Futures advanced 9.4 percent last month, the biggest monthly gain since October on concern dry weather would cut output later this year. Palm oil for May delivery jumped 1.2 percent to 2,867 ringgit ($879) a ton on the Bursa Malaysia Derivatives today, the highest close for the most active contract since September 2012.

Declining Inventories

Stockpiles will probably drop to 1.35 million tons by the end of June, 49 percent below the record 2.63 million tons in December 2012, said Sinnasamy. Exports fell 2.5 percent to 1.24 million tons in February from a month earlier, says Intertek.

Dry weather in Indonesia and Malaysia may hurt output if it lasts two to three more weeks and the impact would come in the final quarter and the following two years, Thomas Mielke, Oil World executive director, said yesterday at the Palm and Lauric Oils Conference in Kuala Lumpur where Fry also spoke.

The dry spell in Malaysia will probably end in the middle or the end of March, according to the meteorological department. The dry season started early in January and February in parts of Sumatra in Indonesia with no rain in Riau province for two months, the country’s weather agency said on March 4. Riau is an important palm-growing area.

Mistry View

Futures may extend their advance if El Nino shrivels crops in Southeast Asia, Dorab Mistry, director at Godrej International Ltd., said yesterday. Prices may approach 3,500 ringgit should it hurt production from late 2014, he said.

“Production is under-performing and stocks are tight,” Mistry said at the gathering yesterday. “In the event that an El Nino develops, I believe CPO futures will cling to 3,000 ringgit beyond June. Production is likely to be affected from late 2014 onwards and we may be staring 3,500 ringgit.”

The weather event, which can also parch Australia while bringing rains to South America, may occur in the coming months, Australia’s Bureau of Meteorology, said on Feb. 25.

      Feb. 2014 (Survey)   Jan. 2014 (MPOB)    Feb. 2013 (MPOB)
Output          1.31             1.51               1.30
Stockpiles      1.80             1.93               2.43
Exports         1.28             1.37               1.40
Imports         0.02             0.016              0.098
Figures are in millions of tons.
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