Palm Oil Reserves in Malaysia Climb for Second Month on Output

May 12, 2014 3:52 am ET

May 12 (Bloomberg) -- Palm oil stockpiles in Malaysia, the world’s second-biggest supplier, increased for a second month in April as production rose to the highest level since December.

Inventories climbed 4.6 percent to 1.77 million metric tons from a month earlier, the Malaysian Palm Oil Board said today. Output advanced 4 percent to 1.56 million tons and exports climbed 1.2 percent to 1.26 million tons, MPOB data showed. That compares with estimates of reserves at 1.74 million tons, production at 1.55 million tons and shipments at 1.29 million tons, according to a Bloomberg survey.

Rising inventories may pressure futures in Kuala Lumpur, which have tumbled 12 percent since reaching an 18-month high in March. Output typically starts to increase in March after declining in the first two months of the year because of growing cycles, and lasts till September.

“In May, we should hopefully see a huge pick up in Ramadan orders and this would probably counteract the supply growth,” said Hiro Chai, an associate director at CIMB Futures Sdn., by phone from Kuala Lumpur after the release of figures.

Communal meals during the month of Ramadan, which starts at the end of June this year, typically boost demand. Shipments from Malaysia rose 28 percent to 391,856 tons in the first 10 days of May from the same period last month, surveyor Intertek said today.

Futures were little changed at 2,579 ringgit a ton on the Bursa Malaysia Derivatives by 3:13 p.m. local time. Prices reached 2,916 ringgit on March 11, the highest level since September 2012, amid concern that drought in the first quarter will reduce production.

Weather Risk

“Because of the drought, the peak harvest season may probably be weaker than in other years,” Chai said.

Palm oil is among crops that may be most hurt by an El Nino weather pattern this year, according to Barclays Plc, which says commodity markets haven’t fully priced in the risks. El Ninos can roil agricultural markets by parching parts of Australia and Asia while bringing rains to South America. Australia’s Bureau of Meteorology issued an alert this month, saying the event may start in July.

“From July, we see weather risk due to El Nino, so production in the second half of 2014 will be affected,” said David Ng, derivatives specialist at Phillip Futures Sdn.