Malaysia’s Palm Reserves Seen at 5-Year Low as Demand Climbs

  • Inventories seen dropping by 7.9% as exports climb 21%: survey
  • Production recovery remains slow, constraining supplies

Palm oil inventories in Malaysia probably fell to the lowest since 2011 as demand for the vegetable oil used in everything from instant noodles to detergents surged in countries including India and China.

Inventories fell 7.9 percent to 1.63 million metric tons in August from a month earlier, the lowest since March 2011, according to the median of eight estimates in a Bloomberg survey of planters, traders and analysts. Production of crude palm oil rose 6.9 percent to 1.7 million tons, while exports jumped 21 percent to 1.67 million tons, the highest since October 2015. The Malaysian Palm Oil Board will release official data by September 13.

Palm oil entered a bull market last month as demand for the world’s most-used cooking oil surged ahead of the mid-Autumn festival in China and Diwali celebrations in India. Inventories are shrinking in Indonesia and Malaysia, the world’s top producers, as shipments increase amid a slow recovery in production from the impact of a El Nino-induced drought.

“People didn’t know how tight supply was until demand came in very strongly,” said Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd. “Buyers found that they had to scramble to find supply. It’s quite a big deal for the market especially when the recovery in production is much slower than what people thought.”

Demand ahead of the Diwali festival at end of October will keep exports healthy in September, Ng said. Exports from Malaysia rose 26 percent to 1.62 million tons in August, according to data from cargo surveyor Societe Generale de Surveillance, with shipments climbing 126 percent and 28 percent respectively to India and China.

While production will recover from now on, yields will trail last year’s levels, according to Franki Anthony Dass, managing director of plantations at Sime Darby Bhd., the world’s biggest grower of the trees by acreage. Crude palm oil production in August probably was 17 percent below a year earlier and the lowest for the month since 2012.

Dwindling palm oil reserves have also pulled global oil and fat stockpiles to four-year lows, Hamburg-based Oil World said in a report last month. Malaysian palm oil inventories have slumped from 2.91 million tons at end-November to 1.77 million tons by end-July, board data show.

Futures Drop

The contract for November delivery on Bursa Malaysia Derivatives closed 1.2 percent lower at 2,598 ringgit a ton in Kuala Lumpur on Wednesday. Futures may rally to 3,000 ringgit by end of the year with declining production in the fourth quarter, Barnabas Gan, an analyst at Oversea-Chinese Banking Corp, wrote in a Aug. 24 report.

"Prices will stay supported until the current tightness is over," said Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd.’s marketing division. "On the other hand, prices will be capped by a record high U.S. soybean crop, a bumper Indian kharif crop and prospect of a large sunseed harvest in Ukraine and Russia."

Malaysian imports probably totaled 20,000 tons in August from 12,823 tons in July while estimates for domestic consumption ranged between 200,000 tons and 260,000 tons in the survey.

August 2016 
July 2016 
 August 2015 
Output          1.70        1.59          2.05
Stockpiles          1.63        1.77          2.49
Exports          1.67        1.38          1.61
Imports           0.02        0.01          0.07

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

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