Palm Reserves in Malaysia Dropping to Lowest in Three Years

Palm oil stockpiles in Malaysia, the biggest supplier after Indonesia, probably declined for a third month in March, falling to the lowest level in three years, according to estimates compiled by Bloomberg.

Inventories fell 3.6 percent from a month earlier to 1.6 million metric tons, the lowest since February 2011, according to the median of six estimates from plantation companies, analysts and traders. Output climbed 11 percent to 1.42 million tons, recovering from the lowest level in 22 months, while exports decreased 3 percent to 1.31 million tons, the least since July 2012, the survey showed. The Malaysian Palm Oil Board will release official data on April 10.

Palm oil, used in everything from noodles to biofuels, dropped from an 18-month high in March to trim the advance to 9 percent in the past year as rains eased concern dry weather would cut yields. Output typically starts to increase in March after declining in the first two months because of growing cycles. Prices may rise in the next four to eight weeks amid tightening world supplies and rising domestic demand in Indonesia, Oil World said on March 25.

“Exports just edged a bit lower so in total it did consume the supply,” Hiro Chai, an associate director at CIMB Futures Sdn., said by phone in Kuala Lumpur. While selling on the improving weather outlook is “still very strong,” prices should be supported above 2,600 ringgit ($795) a ton, he said.

Futures closed at 2,623 ringgit on the Bursa Malaysia Derivatives today, after reaching 2,916 ringgit on March 11, the highest level since September 2012.

Weather Outlook

Malaysia may have more frequent thunderstorms and heavy rainfall during the inter-monsoon season that will last until early May, the Meteorological Department said on March 27. Areas in Selangor are still undergoing a water rationing exercise which will only be called off when dam capacity hits 55 percent, the Star newspaper reported April 3, citing the state’s chief minister Khalid Ibrahim.

Inventory build-up will be limited as demand should increase in the second quarter due to restocking by importers before the Eid festival in July, according to Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd., who forecasts prices to stay above 2,600 ringgit for the rest of the year.

Communal meals typically boost demand during the Muslim fasting month of Ramadan, which precedes Eid and starts at the end of June this year. Exports fell 3.1 percent to 1.21 million tons in March, according to Intertek, a cargo surveyor.

World Reserves

World stockpiles will reach 9.8 million tons by Sept. 30 from 9.99 million tons the prior season, said Oil World, a Hamburg-based researcher. Reserves will be 1.6 million tons smaller than a year earlier by the end of March, it said. Initiatives to boost biodiesel use in Indonesia, which has raised fuel blending rates, mean consumption will rise by 1.6 million tons from a year earlier, making the country the “growth leader” for demand globally, Oil World said.

Dry weather in February and a possible El Nino weather pattern later this year may boost prices, Dorab Mistry, director at Godrej International Ltd. in London, said March 21. Futures in Kuala Lumpur may reach 3,000 ringgit once there is confirmation dryness cut production and an El Nino is coming.

The looming El Nino, which can also parch Australia while bringing rains to South America, may start changing world weather from May, said Drew Lerner, president at World Weather Inc. in Overland Park, Kansas. The event will probably decrease grain and oilseed output in India, eastern Australia, Indonesia, Malaysia and some parts of mainland Southeast Asia, he said April 3.

      March 2014 (Survey)   Feb. 2014 (MPOB)   March 2013 (MPOB)
Output          1.42             1.28               1.33
Stockpiles      1.6              1.66               2.16
Exports         1.31             1.35               1.54
Imports         0.015            0.008              0.09
Figures are in millions of tons.
NOTE: Import figure is the median of four estimates.