Malaysian palm oil: Inventory rises to record high in September

Malaysian palm oil: Inventory rises to record high in September

KUALA LUMPUR (NewsRise) — Palm oil inventory in Malaysia rose to a lifetime-high in September, suggesting that the government’s recent efforts to cut stockpile and lift prices has yielded little result so far.

     Major plantation stocks were subdued as mounting stockpile clouded their earnings prospects for the three months to September 30. Still, slower production growth of palm oil in September from the previous month sparked hopes of a cut in inventory going ahead, even as Southeast Asia’s third largest economy plans to partner larger neighbour Indonesia to form an OPEC style body to control prices.

     Palm oil inventories rose 5% month-on-month and 26% year-on-year to swell to 2.63 million tons in September while output totalled 1.96 million metric tons compared to record 2.05 million tons in August, according to data from the Malaysian Palm Oil Board. Oil palm trees’ peak yield season ranges from July to October.

     Last week, Malaysia’s Commodities Minister Douglas Uggah Embas called for efforts to limit palm oil inventories at around 2 million tons.

     “We anticipate inventories won’t stay up for long,” said Rabobank’s food and agri-business research director Pawan Kumar. “Demand is still holding on” from countries like India, he added.

     Palm oil exports rose 4.4% to 1.68 million tons in September from 1.61 million tons in August, largely boosted by 35% surge in shipments to India, the world’s largest importer of the edible oil.

     Crude palm oil price is expected to trade between 2,200 ringgit a ton and 2,400 ringgit per ton “over the next few months,” said Nomura Securities analyst June Ng.

     Malaysia’s recent plan to raise palm oil’s mix in bio-diesel and to cut imports of the commodity from Indonesia would help support prices above 2,000 ringgit, while concerns over weather should push prices closer to 2,400 ringgit levels, she added. Palm oil rallied last month as El Nino weather conditions — strongest in nearly two decades — threatens a dry spell across the Southeast Asian region that accounts for the bulk of global palm growing areas. El Nino is the unusual warming of the Pacific Ocean that causes a shift of moist winds away from their more typical patterns and results in less rain.

     The benchmark palm oil futures for December delivery rose 2.6% to 2,323.00 ringgit in Kuala Lumpur trading.

     Sime Darby, the world’s largest palm oil producer by acreage, fell 0.9% to 8.68 ringgit and smaller rival IOI Corp was down 0.9% at 4.36 ringgit while Kuala Lumpur Kepong eked out 0.2% gain at 22.72 ringgit.

     “Malaysian plantations have the highest valuations, followed by Indonesian and Singaporean plantations,” said Nomura’s Ng.

     Malaysia and Indonesia agreed earlier this month to set up a palm oil council to coordinate efforts at regulating output and help stabilize prices. The two countries control 86% of the world’s supply of the commodity widely used in products from lipsticks to cooking oil.

     Malaysia hopes that its plan to raise palm oil’s mix in bio-diesel to 10% by this month-end from the current 7% would help to consume an additional 1 million tons of crude palm oil annually. The government is seeking to trim inventory down to around 2 million tons.

     On a year-on-year basis, planters are expected to post weaker earnings in the July – September quarter as the 4% rise in crude palm oil output will only partly offset the 7% drop in prices during the same period, said CIMB Investment Bank analyst Ivy Ng, who kept the sector on Neutral rating.

Malaysian palm oil: Inventory rises to record high in September