MALAYSIA’S palm oil inventory is expected to hit a surplus of three million tonnes this year as production continues to outpace demands from the global and domestic markets, further denting the rise of Malaysia main commodity export.
CIMB Investment Bank Bhd regional head of agribusiness research Ivy Ng said demands from the global and domestic markets needs to be augmented as production is expected to rise in the second half (2H) of the year.
“I think the issue is that the production in Malaysia has remained fairly strong. It was up 9% in the first five months of this year.
“The concern now is in the 2H of the year because of the seasonality factor, and whether we can continue encouraging a strong demand,” she told The Malaysian Reserve recently.
Last week, Primary Industries Minister Teresa Kok launched the B7 — a blend of 7% palm biodiesel — programme for the transport and industrial sectors in Sarawak.
B10, the biodiesel with a higher blend of palm oil, was launched in February, while the B7 was supposed to be used by the industrial users starting July 1, 2019.
The biodiesel programme will increase domestic palm oil consumption to 760,000 tonnes annually.
In addition, Malaysia signed an agreement with China in April to supply a minimum of 1.9 million tonnes of palm oil over five years starting in 2019.
Finance Minister Lim Guan Eng said Malaysia is confident to sell more palm oil. Although Malaysia has signed several memoranda with China, Ng said at present, the agreements have yet to reveal any detailed timeline for the exports.
“I have not seen clarity on how much China is going to take and when exactly they are going to import these additional volumes.
“The view is that the production will accumulate in 2H of the year for both Malaysia and Indonesia. So, we need to keep demand strong to pare down our stocks.
“I don’t think (the demand) will be much higher than what we have today because production will be stronger. Unless, production disappoints, we likely will see the same trend as last year,” Ng said.
She added that there is an urgency to spur demands, from both the domestic and global markets, to stabilise the price and pare down the country’s inventory level.
“The crude palm oil (CPO) price is low due to our high production. The price needs to be suppressed to encourage demand. Otherwise, we cannot move our products.
“It is possible to hit three million tonnes for our inventories, but it also depends on the weather, government policy and CPO price. All of these are going to affect demands until the end of the year,” she said.
In May, the stockpiles dropped to 2.46 million tonnes, 10.3% down from 2.73 million tonnes in April 2019. It was reduced to 23.9% after the inventory peaked at 3.27 million tonnes in December last year.
The exports from Malaysia were pegged at 1.7 million tonnes, a 3.5% rise from the previous month, which was the country’s strongest export value in 33 months.
Between January and May, Malaysia exported eight million tonnes of palm oil totalling RM17.82 billion.
Source : The Malaysian Reserve