Palm Oil Inventory Set to Jump

Survey: Stockpiles in July may be at the highest level in ten months

KUALA LUMPUR: Palm oil stockpiles in Malaysia, the world’s second biggest producer, probably climbed the most in 10 months in July as output increased and exports fell, easing supply concerns as a drought cuts US soybean yields.

Stockpiles gained 10% to 1.87 million tonnes from 1.7 million tonnes in June, which was the lowest since April 2011, according to the median in a Bloomberg survey of four analysts and one plantation company. Production rose 9.5% to 1.61 million tonnes, the survey showed.

While that’s the highest in eight months, it’s 8% below the 1.75 million tonnes a year earlier. Exports declined 9.8% to 1.38 million tonnes. The Malaysian Palm Oil Board releases the data on Aug 10.

Rising supplies of palm oil, used in everything from candy to instant noodles and fuel, may help curb a surge in global food costs as the worst US drought in a generation wilts crops from soybeans to corn.

Futures have fallen 19% since reaching a 13-month high in April, cutting costs for users such as Nestle SA, the largest food company, while potentially hurting profits at producers including Sime Darby Bhd.

“If demand picks up from China and India, we probably won’t see too big of an increase in stockpiles,” said Alvin Tai, an analyst at OSK Investment Bank Bhd. Inventories might reach as high as two million tonnes before falling, he said. Tai expects prices to average at RM3,000 this year.

Weakening demand for palm oil may outweigh the impact of a year-on-year drop in Malaysian output and prices may decline to RM2,700 by year-end unless the United States does more to stimulate growth and boost demand, according to Dorab Mistry, director of Godrej International Ltd.

Exports from Malaysia dropped 15% to 1.23 million tonnes last month, surveyor Intertek said on July 31. Sales were 1.53 million tonnes in June, according to the palm oil board.

“Sagging export-demand will keep weak prices intact” although output fell about 8.9% in the the first seven months of the year, said Nagaraj Meda, managing director of Hyderabad, India-based TransGraph Consulting.

The production estimate for 2012 was cut to 18.5 million tonnes from 19 million tonnes earlier, the Plantation Industries and Commodities Ministry said on Aug 1. Output was a record 18.9 million tonnes last year, board data shows.

Palm oil for October-delivery advanced as much as 0.7% to RM2,938 (US$946) a tonne on the Malaysia Derivatives Exchange yesterday. Futures reached RM2,838 on June 14, the lowest level since October 2011.

Soybeans advanced to a record US$16.915 a bushel on the Chicago Board of Trade on July 23.

The rally lifted soybean oil’s premium over palm to US$263.43 a tonne, the highest level since September, and compared with this year’s low of US$56.04 in March, according to data compiled by Bloomberg.

December-delivery soybean oil fell 0.4% to 52.65 cents per pound in Chicago at 11:45 am in Kuala Lumpur.

“Despite the wider spread in soyoil, crude palm oil prices have troughed at elevated levels since 2008, underlining robust structural support for the edible oils complex,” Abah Ofon, an analyst at Standard Chartered Plc, wrote in a report Aug 1. Demand from China and India, the biggest consumers, and the Middle East will pick up in the third quarter as inventories are drawn down, he said.

Malaysia’s decision to increase a duty-free export quota for crude palm oil to five million tonnes this year may limit gains in prices as it expanded supplies, said TransGraph’s Meda.

The temporary plan is aimed at reducing inventories amid the seasonal increase in output, Malaysia’s plantation ministry said on Aug 1. The nation is seeking to reverse a slowdown in shipments after Indonesia cut export taxes in October.

Shipments from Indonesia, the largest producer, probably gained 23% to 1.4 million tonnes in July from 1.14 million tonnes in June, as companies took advantage of a lower export tax, according to the median of five plantation executives in a Bloomberg News survey published July 31. Output might fall 5% to two million tonnes, three of the respondents said. The executives didn’t provide estimates for inventories. – Bloomberg

Source : The Star

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