Malaysia Palm Reserves Seen at 11-Month Low as Output Falls

  • February production seen at lowest since 2011, survey shows
  • Weak demand, ringgit rally pose headwinds to prices: Pelindung

Palm oil inventories in Malaysia probably fell to an 11-month low in February as a dry spell triggered by the strongest El Nino in almost two decades hurt the crop in the world’s second-largest producer.

Stockpiles slid 8.7 percent to 2.11 million metric tons from a month earlier, the smallest since March 2015, according to the median of 8 estimates in a Bloomberg survey of planters, traders and analysts. Output declined 3.5 percent to 1.09 million tons, falling for a fourth month to the lowest since January 2011. Exports fell 14 percent to 1.1 million tons, the survey showed. The Malaysian Palm Oil Board will release official data by March 10.

Inventories are set to shrink further as the impact of the El Nino exacerbates the decline in production, boosting prices, Singapore-based commodity trader Olam International Ltd. said last week. Futures surged to a 21-month high in February and have since lost some steam as a stronger ringgit curbs demand from buyers. Output in Southeast Asia may experience the worst impact since the 1997-1998 El Nino, according to LMC International Ltd. Chairman James Fry.

“Based on historical trends, demand should be soft in the short term,” said Voon Yee Ping, an analyst at Kenanga Investment Bank Bhd. “But production should be soft toward April and stockpiles should continue to decline in the next few months.”

Supply Squeeze

Futures for May delivery on Bursa Malaysia Derivatives rose as much as 1.4 percent, the biggest daily gain for a most-active contract since Feb. 12, before trading 1.3 percent higher at 2,540 ringgit ($621) a ton by the midday break in Kuala Lumpur. Prices are up 2.2 percent this year.

“Palm oil prices are facing a perfect storm of the drought, which will hit output, and the new demand of biodiesel from Indonesia,” Fry said in an interview on Monday in Kuala Lumpur. Indonesia may blend an average of 140,000 tons and 150,000 tons of biodiesel a month this year, he said.

Olam’s Chief Executive Officer Sunny Verghese said on Feb. 29 that about 1.5 million to 2 million tons of palm oil production will be lost to El Nino-induced dry weather. Malaysian plantation consultant Ganling Sdn. warns that the supply disruptions are “far from over,” with futures seen trading between 2,300-2,800 ringgit in 2016.

Lower Output

“Sabah planters foresee output to be lower again if dryness continues in March,” Hiro Chai, associate director at CIMB Futures Sdn., said referring to Malaysia’s top palm-growing state. “If fruits are still dry in March, lower oil extraction will be seen.”

Waning demand from top customers amid the ringgit’s rally may pose headwinds to further price increases, according to Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari. A bumper harvest of soybeans from South America will also pressure prices, he said.

Imports probably jumped 25 percent to 50,000 tons in February, according to the survey. Malaysia said last month it scrapped the temporary curbs on imports imposed in October. Domestic consumption ranged between 210,000 tons and 240,000 tons, the survey showed.

Feb. 2016
Jan. 2016
 Feb. 2015
Output          1.09        1.13          1.12
Stockpiles          2.11        2.31          1.74
Exports          1.10        1.28          0.97
Imports           0.05        0.04          0.06

NOTE: Figures in million metric tons are based on the median of 8 estimates.

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