Palm oil stockpiles rise in Malaysia

awit

KUALA LUMPUR: Palm oil stockpiles in Malaysia have increased for the first time since November.

This was mainly due to a drop in demand for the world’s most-used vegetable oil and production rebounding from the impact of a drought triggered by El Nino.

Stockpiles climbed 4.2 per cent to 1.72 million metric tons by the end of June from a month earlier, according to the median of eight estimates in a Bloomberg survey of planters, traders and analysts.

According to a Bloomberg report, production of crude palm oil jumped 10 per cent to 1.49 million tonnes, picking up pace from a 4.9 per cent rise a month earlier.

Exports dropped 5.5 per cent to 1.21 million tonnes, the weakest for June since 2008.

The report said stockpiles were expected to swell further as plantations entered the peak production season and this might weigh on futures, which tumbled 14 per cent in the second quarter, the biggest decline since September 2012.

Weaker export demand alongside higher output will be negative for prices, which are seen trading between RM2,300 and RM2,600 in July, Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd., wrote in a July 1 note.

Higher crude palm oil production might signal that “the worst of the El Nino impact on yields may be over,” Ng said. Lingering effects from the weather phenomenon showed that while higher than May, June’s output may still be 15 per cent lower than June 2015.

Demand for Malaysia’s exports in coming months largely depends on China, said Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd’s marketing division.

“Their palm oil stocks at ports have dwindled below 400,000 tons in recent weeks, below one-month’s consumption of about 600,000 tonnes,” Phang was quoted as saying by Bloomberg. “There are signs that China has begun replenishing stocks which would support prices.”

Alan Lim, plantations and property analyst at MIDF Amanah Investment Bank Bhd, is optimistic that palm oil’s recent price slump has made it more competitive and may help it regain market share from rival edible oils.