Palm Inventories Climb From One-Year Low as Output Increases

Aug 11, 2014 5:15 am ET

(Updates price in fifth paragraph.)

Aug. 11 (Bloomberg) -- Palm oil stockpiles in Malaysia, the biggest producer after Indonesia, increased last month from the lowest level since June 2013 as production rose more than expected. Futures in Kuala Lumpur declined to a one-year low.

Reserves advanced 1.5 percent to 1.68 million metric tons in July from a month earlier, the Malaysian Palm Oil Board said. The median of estimates in a Bloomberg survey was for a drop to 1.6 million tons. Output rose 6.1 percent to 1.67 million tons and exports fell 2.3 percent to 1.45 million tons, board data showed. That compares with estimates of 1.62 million tons for output and 1.45 million tons for shipments in the survey.

Futures in Kuala Lumpur tumbled from an 18-month high in March into a bear market last month on forecasts for record U.S. production of soybeans, which can be crushed to make an alternative oil. Palm prices will probably decline on poor demand, ample oilseed supply and reduced weather risks, according to Rabobank International.

“Stockpiles are higher than what people were expecting,” Ivy Ng, an analyst at CIMB Investment Bank Bhd., said by phone. “There is a concern that exports can’t keep up with production, so inventories will keep rising.”

Prices slumped 2.2 percent to 2,183 ringgit ($683) a ton on Bursa Malaysia Derivatives today, the lowest level since July 30, 2013. Futures have declined 18 percent this year.

Soybean Crop

Soybean oil in Chicago dropped as much as 1.4 percent to 35.38 cents a pound today, the lowest since October 2009. That reduced its premium over palm to an average of $93.51 a ton this year, compared with $244 in 2013, data compiled by Bloomberg show. The U.S. soybean harvest will rise to a record 3.865 billion bushels this year, more than the 3.8 billion estimated by the Department of Agriculture, INTL FCStone said Aug. 4.

Palm oil production in Malaysia may reach a record 19.7 million tons to 19.9 million tons, while Indonesia’s output may total an all-time high of 30.5 million tons or more this year, according to Dorab Mistry, director at Godrej International Ltd. The two Southeast Asian producers together account for 86 percent of world supplies.

Output “turned out to be quite strong, suggesting that the harvest has been good and there are a lot of fruits on the trees,” Ng said.

Rabobank cut its outlook for palm oil this month to 2,400 ringgit in the third quarter from 2,500 ringgit, saying reduced probability of El Nino has eased the weather risk.

The odds of an El Nino, which can bring drought to the Asia-Pacific region, have fallen to about 65 percent through the end of the year, the U.S. Climate Prediction Center said on Aug. 7. The agency had earlier put the chance of the phenomenon forming at almost 80 percent.