Malaysian palm oil stockpiles at 13-month low

Palm-oil inventories in Malaysia, the second-biggest supplier, probably
dropped to the lowest level in more than a year in May, potentially
curbing a 19 per cent slump in prices of the commodity used in candy
bars and biofuels.

Stockpiles fell 3.8 per cent to 1.78 million
metric tons, the lowest since April 2011, from 1.85 million tons a month
earlier, according to the median in a Bloomberg survey of three
plantation companies and two analysts. While production increased 6.3
per cent to 1.35 million tons from 1.27 million tons, it was 22 per cent
below last year's 1.74 million tons. Exports rose 4.5 per cent to 1.39
million tons. The Malaysian Palm Oil Board will release the data on June
11.

The price has plunged 18 per cent from a 13-month high in
April as growth slowed in China, the biggest cooking-oils user, and the
debt crisis worsened in Europe. Exports from the top producer Indonesia
climbed in May and stockpiles were little changed, as importers
increased purchases before the Muslim fasting month of Ramadan starts in
July, a separate survey showed last week. Rising demand may help boost
revenues at companies such as IOI Corp and Sime Darby Bhd.

A
further decline in stockpiles "should be supportive of prices," said
Alvin Tai, an analyst at OSK Holdings Bhd. "Prices should be bottoming
out at this kind of level but we don't know about the demand side; with
all these crises people may just hold back purchases."

The
contract for delivery in August advanced as much as 1.9 per cent to
RM3,008 (US$942) per ton on the Malaysia Derivatives Exchange and traded
at RM2,961 by 4.42pm yesterday, snapping four days of losses. The
most-active contract, which reached RM3,628 on April 10, closed at
RM2,953 on June 4, the lowest level since Nov 1.

Exports from
Malaysia gained 2.4 per cent to 1.38 million tons last month, surveyor
Intertek said May 31. Sales were 1.33 million tons in April, according
to Malaysian Palm Oil Board data. Indonesian shipments may have gained 9
per cent to 1.63 million tons from 1.49 million tons in April, last
week's survey showed. Production probably increased to 2.1 million tons
from 1.9 million tons, while stockpiles were little changed at 1.85
million tons, it showed.

"The gain in exports is due to
pre-Ramadan stock-up from Bangladesh, India and the Middle East," said
Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd. "Despite
the global economic downturn, it shows that demand for palm oil is
still very resilient." Consumption of staples climbs during Ramadan as
followers break daylong fasts with communal meals.

The lower
inventory is "bullish," but prices could decline further, depending on
the global economy and the price of crude oil, said Lim. Crude oil
traded near the lowest level in almost eight months reached on June 4,
on speculation policy makers from the US to China will take steps to
help growth. Crude competes with palm for use in biofuels.

Malaysia's
output may climb in the next two-to-three months reaching 19 million
tons, Minister of Plantation Industries and Commodities Bernard Dompok
said on June 4. The country produced a record 18.9 million tons in 2011,
according to the board.

The survey showed that production for
the first five months will be 7.4 per cent lower at 6.3 million tons
from 6.8 million tons in the same 2011 period. Output was down 14 per
cent in March from a year ago and 17 per cent lower in April, data from
the board shows.

"This is another confirmation that for three
consecutive months, tree stress is taking its toll on production,"
Kenanga Investment Bank's Lim said. "This is due to the El-Nino impact
which happened two years ago which has caused tree stress -- meaning the
tree produces more male flowers than female flowers which won't
transform into fresh fruit bunches. That explains why production is
significantly lower."

"Output will drop in the first half", Dorab
Mistry, a director at Godrej International Ltd, said on March 27. From
March, production each month will be less on a year-on-year comparison,
and the low cycle may end in November, according to Mistry, who has
traded the cooking oil for more than three decades.

The oil-palm
bears fruit all year, with more output in the second half. Drought, such
as the one brought about by El Nino in 2010, can stress trees, reducing
yield.

The productivity of the fully matured trees was affected
by the lagged weather effect, OSK Holdings' Tai said. "Mature trees are
not recovering in terms of production. Usually, at this time of the
year, production is already well on its way up, but this time around
it's still disappointing." -- Bloomberg

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