Palm Oil Reserves in Malaysia Seen Falling Most in Two Years

  • Inventories probably fell to a one-year low, survey shows
  • Prices may rise to 3,000 ringgit as stockpiles shrink: MIDF

Palm oil stockpiles in Malaysia, the world’s second-largest grower, probably slumped by the most in two years as shipments to India and China soared.

Inventories as of end-March slid 13 percent to 1.89 million metric tons from a month earlier, the biggest decline since February 2014, according to the median of eight estimates in a Bloomberg survey of planters, traders and analysts. That would be the lowest level since March 2015. Exports climbed 14 percent to 1.24 million tons, while production rose 8.7 percent to 1.13 million tons, the least for the month since 2007. The Malaysian Palm Oil Board will release official data by April 11.

Futures in Kuala Lumpur last month rallied to a two-year high on concern the strongest El Nino in two decades would reduce supplies from the biggest growers. Malaysian stockpiles falling below 2 million tons and prospects of higher demand from India and China may help the tropical oil extend the price rally, according to David Ng, derivatives specialist at Phillip Futures Sdn Bhd.

“China may purchase a bit more, and India continues to buy Malaysian palm," Ng said by phone from Kuala Lumpur. “We should witness exports to be better in the coming months.”

Festive Buying

India’s festive buying for palm will stay resilient this year as buyers re-stock around 750,000 tons ahead of Ramadan in June, according to Sunvin Group Chief Executive Officer Sandeep Bajoria. Malaysia’s exports to India and China climbed 39 percent and 170 percent respectively in March from February, independent cargo surveyor Societe Generale de Surveillance estimates.

Palm oil may extend price gains to 3,000 ringgit a ton due to “severe stockpile depletion,” according to Alan Lim, an analyst at MIDF Amanah Investment Bank Bhd. Futures traded at 2,715 ringgit ($694) a ton by 3:25 p.m. local time on Bursa Malaysia Derivatives, up 9.3 percent this year.

"As the impact of El Nino on oil palm tree production is only at the beginning stage, crude palm oil production will be significantly lower than what it used to be in the second quarter," Lim said in an e-mail on April 1. Malaysian inventories could drop to 1.5 million tons toward the end of the second quarter, Lim wrote in a March 25 report.

Worst-hit Sabah

While output in March rose from February, production in the first two months of the year fell about 5 percent to 2.17 million tons from a year earlier, according to MPOB data. Production in the top palm-growing state Sabah, one of the worst-hit areas by El Nino, fell 17 percent during the two months.

Over 80 percent of Malaysia’s palm area was “critically dry” last month, which will lead to lower-than-expected output in October and December, Oil World estimates. The country’s production may slump by 2 million tons in the year through September, more than previously anticipated, as the lingering effects of El Nino curb yields, according to Dorab Mistry at Godrej International Ltd.

Imports fell 14 percent to 60,000 tons in March and domestic consumption ranged between 180,000 tons and 240,000 tons, according to the survey.

March 2016
Feb. 2016
 March 2015
Output          1.13        1.04          1.50
Stockpiles          1.89        2.17          1.86
Exports          1.24        1.09          1.19
Imports           0.06        0.07          0.04

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

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