Palm Oil Production in Malaysia Seen Falling 11% in December

Palm oil output in Malaysia, the biggest producer after Indonesia, will probably drop the most in 10 months in December amid a seasonal decline in yields. Prices climbed to the highest in almost a month.

Production is set to fall 11 percent to 1.56 million tons from 1.75 million tons in November, according to the median of five analyst and trader estimates compiled by Bloomberg. That would be the lowest for December since 2011 and 6.6 percent less than a year earlier, Malaysian Palm Oil Board data show.

Futures in Kuala Lumpur are heading for the third annual loss in four years as global cooking oil supplies expand and a plunge in crude to the lowest since 2009 reduces demand for alternative fuels. Indonesia and Malaysia have scrapped export taxes to help cut reserves. Output typically declines from November through February because of the low-production season and as rains disrupt harvesting.

“It’s highly dependent on the weather,” Ivy Ng, an analyst at CIMB Investment Bank Bhd. in Kuala Lumpur, said by phone on Dec. 19. “We have a bit of flooding here and there, but we don’t know how long it will last, and which areas are affected, and whether it has affected harvesting. More clarity will be seen at the end of the month.”

Futures rose as much as 1.2 percent to 2,236 ringgit ($639) a metric ton on Bursa Malaysia Derivatives today, the highest level since Nov. 27, before trading at 2,235 ringgit by 4:49 p.m. local time. Prices have declined 16 percent this year.

Rain Ahead

The northeast monsoon brings widespread, continuous rains which often cause floods along the east coast states of Peninsula Malaysia from mid-November to early January, the Malaysian Meteorological Department said in its monthly report. The precipitation usually reaches Sabah and Sarawak from late this month until early February, it said. The two states are the largest producers of palm oil.

Traders are monitoring output in December to see if the country can reach its full-year target, according to Chandran Sinnasamy, executive director at LT International Futures Sdn. in Kuala Lumpur.

Malaysia may produce a record 19.5 million tons this year from 19.2 million tons in 2013 on higher yields from fresh fruit bunches, the Finance Ministry said Oct. 10. Adding the survey estimate to Palm Oil Board data for the first 11 months gives output of 19.86 million tons.

Inventories may decline 4 percent to 2.19 million tons by the end of the year from a month earlier, according to Alan Lim, an analyst at Kenanga Investment Bank Bhd. He expects output to drop 11 percent in December from November and to extend the decline in January, keeping prices above 2,100 ringgit, he said. Production, which reached a record 2.03 million tons in August, should recover in April, Lim said.

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