Palm oil reserves in Malaysia seen declining to three-year low

by **Cals** Thu 07 Aug 2014, 00:48

Business & Markets 2014

Written by Bloomberg

Wednesday, 06 August 2014 08:57

KUALA LUMPUR (Aug 6): Palm oil stockpiles in Malaysia, the top supplier after Indonesia, probably dropped to the lowest in more than three years in July even as production increased.

Inventories lost 3.6 percent to 1.6 million metric tons from 1.66 million tons in June, according to the median of seven estimates from planters, analysts and traders compiled by Bloomberg. That’s the lowest level for reserves since February 2011, according to Palm Oil Board data. Production climbed 3.2 percent to 1.62 million tons, the survey showed. The board is scheduled to release the figures on Aug. 11.

Futures entered a bear market last month after the U.S. predicted a record soybean crop. That pushed down soybean oil, increasing pressure on its substitute palm. Reduced odds on El Nino and rising global oilseed output will weigh on prices until at least the fourth quarter, Rabobank International says. Higher consumption in Malaysia because of the Eid Muslim festival probably countered increased output, said Hiro Chai, associate director at CIMB Futures Sdn.

“Production isn’t really rising as much as it should be seasonally because of the dryness that occurred in January and February,” Ben Santoso, an analyst with DBS Vickers, said by phone in Singapore. “Demand isn’t going anywhere either. People are actively switching to other vegetable oils given that there’s plenty of supply out there.”

Futures on the Bursa Malaysia Derivatives in Kuala Lumpur tumbled to 2,246 ringgit ($705) a ton on July 31, the lowest level since Aug. 12, and traded at 2,258 ringgit yesterday.

Oilseed Supplies

Soybean oil’s premium to palm averaged $93 a ton this year, compared with $244 in 2013, data compiled by Bloomberg show. Soybean oil in Chicago slumped to 35.63 cents a pound on Aug. 4, the lowest level since October 2009, as soybeans fell to $10.54 a bushel, the lowest since October 2010.

Farmers in the U.S. will harvest 3.8 billion bushels of soybeans, boosting world inventories to a record 85.31 million tons, the U.S. Department of Agriculture estimates. The odds of El Nino, which brings drought to Asia and heavy rains in South America, are about 50 percent after parts of the tropical Pacific Ocean cooled, Australia’s Bureau of Meteorology said July 29. The bureau had put the chances at 70 percent in June.

Palm exports fell 2 percent from June to 1.45 million tons, the survey showed. Total shipments retreated 2.8 percent to 1.35 million tons even as sales to the European Union climbed 12 percent, surveyor SGS (Malaysia) Sdn. says.

Export Demand

Shipments to Europe should further increase as palm’s discount to Brent in London, a crude oil benchmark, will boost demand from biodiesel makers, said Alvin Tai, an analyst at RHB Investment Bank Bhd. in Kuala Lumpur.

Dry weather in Peninsular Malaysia in mid-2012 and 2013, and the first quarter of this year will hurt yields in the last quarter or the beginning of 2015 due to the lagged impact of water deficits on palms, Ling Ah Hong, director of Ganling Sdn., a Kuala Lumpur-based consultant, said April 28.

Some planters rushed to harvest more fruits before the Eid holidays last week, that mark the end of the Muslim fasting month of Ramadan, to make up for the loss in working hours, said Chai from CIMB Futures.