Palm Oil Inventories in Malaysia Tumble to 14-Month Low

  • Production weaker than expected, lowest for April since 2012
  • Demand seen increasing ahead of Ramadan festive season: Ng

Palm oil stockpiles in Malaysia tumbled to the lowest level since February last year as El Nino-induced drought curbed production growth in the world’s second-largest grower.

Inventories fell 4.5 percent to 1.80 million metric tons in April from a month earlier, declining for a fifth month in the longest streak since June 2013, Malaysian Palm Oil Board data showed Tuesday. That compares with the 1.82 million ton forecast in a Bloomberg News survey. Crude palm oil output rose 6.7 percent to 1.30 million tons and exports slid 13 percent to 1.16 million tons.

The world’s most-consumed cooking oil reached a two-year high in March amid concerns that dry weather would reduce output in top producers. Malaysia’s production in April declined 23 percent from a year earlier and is the lowest level for the month since 2012, according to board data.

"We’re at the tail end of El Nino, but judging from the numbers today, it looks like the recovery in production may be a bit weak," David Ng, derivatives specialist at Phillip Futures Sdn, said by phone from Kuala Lumpur. El Nino-linked “impact could continue in the third or fourth quarter depending on how the weather plays out in the next couple of weeks."

Malaysia and Indonesia together make up about 86 percent of global palm supply. World output may be smaller than previously expected, sliding to 61.25 million tons this year, the first decline in production in more than 20 years, industry researcher Oil World said last week. The lagging effect of drought on trees may lead to lower output into 2017, the Hamburg-based group estimates.

Ramadan Demand

Demand for the tropical oil, used in everything from cookies to margarines as well as biodiesel, may increase as buyers in India, Pakistan, and the Middle East restock ahead of the Muslim Ramadan festive season, Ng said. Malaysia’s exports surged 22 percent to 391,222 tons in the first 10 days of May from the same period a month earlier, cargo surveyor Intertek Testing Services said.

“At this moment, we forecast better export numbers because of seasonal buying,” Ng said. Still, “It’s too early to assess if the current demand can stay up in the next couple of weeks.”

Seasonal demand this year could be weaker than last year as palm oil’s narrowing discount to soybean oil may prompt some buyers to switch to the rival edible oil, according to Ng. Soybean oil’s premium over palm was at $67 a ton on Tuesday, below the average of $99 over the past year, according to data compiled by Bloomberg.

Futures in Kuala Lumpur closed at 2,661 ringgit a ton on Tuesday, down 4.7 percent from the March high of 2,793 ringgit. Prices are still 7.1 percent higher this year, extending a 9.7 percent rally last year.

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