Palm Reserves in Indonesia Falling as Dryness Curbs Harvest

Palm oil inventories in Indonesia probably dropped for a second month in October as drought curbed production and exports climbed from the world’s top supplier.

Stockpiles fell 4.5 percent from September to 2.1 million metric tons, according to the median of five grower and refiner estimates compiled by Bloomberg. Output declined 1.7 percent to 2.26 million tons, the median of six estimates shows.

Palm, used in food and fuel, entered a bull market last week after Indonesia and Malaysia, which is the second-largest producer, scrapped export taxes to boost demand. Yields started to drop in September because of the delayed impact of drought earlier this year and dryness now will cut production in 2015, according to Oil World, a Hamburg-based researcher.

“The weather was so dry in several areas last month that it dried up some rivers in west Kalimantan,” said Joelianto, the Jakarta-based trading director at PT Sinar Mas Agro Resources & Technology. While production may improve in south and east Kalimantan in November, parts of Sumatra may still suffer from dryness, he said in text message on Nov. 12, referring to the country’s biggest growing regions.

Declining production and stockpiles may help prices to exceed 2,500 ringgit ($749) a ton by March, Dorab Mistry, director at Godrej International Ltd., said last month. Palm traded at 2,217 ringgit on Bursa Malaysia Derivatives today.

Futures closed at 2,336 ringgit on Nov. 3, more than 20 percent above the 1,929 ringgit settlement on Aug. 29, meeting the common definition of a bull market.

Export Taxes

Palm touched 1,914 ringgit in intraday trading on Sept. 2, the lowest since March 2009, after slumping into a bear market in July. The plunge prompted Malaysia to scrap the export tax for two months through October and later extend the exemption to December. Indonesia also cut taxes to zero for October and this month. The rate may stay at that level in December, Derom Bangun, chairman of the Indonesian Palm Oil Board, said Nov. 10.

Exports from Indonesia probably climbed 2.3 percent to 1.73 million tons in October after the tax cut on most shipments and as demand increased in India, the top buyer.

Imports by India rose to 855,516 tons in October from a year earlier, the Solvent Extractors’ Association said yesterday. That’s more than the 800,000 tons estimated in a Bloomberg survey. Demand in China, the second-biggest buyer, remains weak while purchases from Europe are increasing for Christmas, Susanto, head of regional autonomy at the Indonesian Palm Oil Association, said Nov. 7. The group may release export data next week. The percentage changes for output and reserves in the survey are based on previous estimates.

Dry Weather

While the harvest of fresh fruit bunches in Kalimantan was delayed in October because of the dry weather, production is picking up this month, Martua Sitorus, executive deputy chairman at Wilmar International Ltd., said in Singapore on Nov. 12. The world’s largest trader of the commodity reported a drop in third-quarter pretax profit for its palm and laurics business as output declined and excess refining capacity in Indonesia compressed margins.

Parts of central and southern Sumatra and Kalimantan suffered from dryness in recent weeks, while parts of Malaysia had below-normal rainfall in September and the first 20 days of October, Oil world said in report e-mailed Nov. 4. The researcher said prices may climb to 2,500 ringgit in the first quarter as import demand increases and production shrinks.

           Oct. 2014 (Survey)  Sept. 2014   Oct. 2013
Output           2.26             2.30        2.40
Stockpiles       2.10             2.20        2.04
Exports          1.73             1.69        1.86
NOTE: Figures are in millions of tons
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