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Palm Oil Reserves in Indonesia Seen Climbing as Output Peaks

  • Production rebounding from impact of El Nino-induced drought
  • Reserves climb 12% in September as output gains 2.2%: survey

Palm oil inventories in Indonesia probably rose to a four-month high as supplies in the world’s largest producer neared a seasonal peak.

Stockpiles climbed 12 percent to 1.9 million metric tons in September from 1.695 million tons in August, the highest since May, according to the median of seven estimates from analysts, refiners and plantation executives compiled by Bloomberg. Exports of palm and kernel oils rose 3.5 percent to 2.15 million tons, while production rose 2.2 percent to 3.04 million tons, the survey showed.

The world’s most-consumed edible oil rallied into a bull market in August as lagged effects from El Nino-induced drought squeezed inventories in top growers Indonesia and Malaysia. Production in Indonesia has seen a “dramatic recovery" from mid-August while the expected Malaysian rebound is yet to commence, according to Godrej International Ltd.’s Dorab Mistry.

“Production will probably peak in October,” said Derom Bangun, chairman of the Indonesian Palm Oil Board. While output will likely increase, growth should be slower than normal because of the delayed impact from El Nino, he said by phone on Oct. 14. Palm oil trees typically enter a seasonally higher production cycle in the second half of the year which peaks between August and October.

Palm oil futures for delivery in January on Bursa Malaysia Derivatives fell 2 percent to close at 2,714 ringgit ($648) a ton in Kuala Lumpur on Tuesday. Prices have rallied about 18 percent in the past year.

The lingering impact of a dry weather caused by El Nino may also limit production in Indonesia and Malaysia, which together account for 86 percent of global supplies, in the first half of 2017, according to Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd. Indonesian output may drop between 5 percent and 10 percent in 2016 from a year ago due to El Nino, she said.

Exports from Indonesia rose last month as India, the world’s largest buyer, replenished inventories, Hariyanto Wijaya, an analyst at PT RHB Securities Indonesia, said by e-mail on Monday.

Indonesia’s domestic consumption probably rose to 965,000 tons last month from 926,000 tons in August, according to the median of three estimates in the survey. The Indonesian Palm Oil Association, or Gapki, may publish Sept. data later this month.

Sept. 2016Aug. 2016Sept. 2015
Exports2.152.0782.34
Production3.042.9762.50
Stockpiles1.901.6952.94

Source: Gapki, Bloomberg Survey
NOTE: Figures are in million tons

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