Palm Reserves in Malaysia Shrink Most Since 2009 as Output Drops

Palm oil stockpiles in Malaysia declined in February by the most in five years as production in the biggest supplier after Indonesia slumped to the lowest level since April 2012. Futures climbed to an 18-month high.

Inventories fell 14 percent to 1.66 million metric tons from a month earlier, the lowest level since June, the Malaysian Palm Oil Board said today. The median of estimates in a Bloomberg survey was for 1.8 million tons of reserves. Production fell 15 percent to 1.28 million tons, less than the survey forecast of 1.31 million tons, while exports lost 1.3 percent to 1.35 million tons, the lowest since July 2012.

Futures advanced 9.4 percent last month, the biggest monthly gain since October, on concern dry weather would cut output later this year. Futures may approach 3,500 ringgit should El Nino occur and hurt production from late 2014, according to Dorab Mistry, director at Godrej International Ltd.

“I expect Malaysian production will not be good this year because of the drought in May and June last year,” Hariyanto Wijaya, an analyst at PT Mandiri Sekuritas, said by phone from Jakarta. “Production may decline further in March because usually the drought impact is between six to 12 months after.”

Futures advanced as much as 0.7 percent to 2,907 ringgit ($885) a ton on the Bursa Malaysia Derivatives today, the highest level since September 2012.

Shipments from Malaysia lost 5 percent to 293,879 tons in the first 10 days of March from the same period last month, surveyor Intertek said today. World exports of palm oil may decline for the first time in 16 years, dropping 2.3 percent to 43.2 million tons in 2013-2014 from a season earlier, Oil World, a Hamburg-based researcher, estimates.

Ramadan Demand

Exports may begin to increase about two to three months before Ramadan, Wijaya said, referring to the Muslim fasting month, which is set to start at the end of June this year. Communal meals during the month typically boost demand.

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 March 5.

Production is lowest in January and February because of growing cycles. Output in February declined 26 percent from a year earlier. Imports dropped 48 percent to 8,259 tons in February from a month earlier, board data show.

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