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Palm-oil stockpiles in Malaysia, the second-largest supplier after Indonesia, slumped to the lowest level in a year in April as production continued to drop from a year ago and exports were flat.
Inventories tumbled 5.4 percent to 1.85 million metric tons from a revised 1.95 million tons in March, the Malaysian Palm Oil Board said in a statement today. That was less than the 1.92 million tons predicted in a Bloomberg survey last week. Output increased 5.1 percent to 1.27 million tons from 1.21 million tons in March. This was 17 percent less than 1.53 million tons a year earlier. Exports were little changed, up 0.14 percent to 1.33 million tons, according to the board.
Prices have dropped 7.1 percent from a 13-month high of 3,628 ringgit ($1,183) a ton on April 10, on expectations of higher output and as concern over the Euro crisis deepened, damping demand for commodities. Lower reserves could halt the decline in prices and possibly improve profits at producers such as Sime Darby Bhd. (SIME) and IOI Corp.
“Output is probably going through a soft patch and we believe this is going to last longer than what the market is expecting,” Abah Ofon, an analyst at Standard Chartered Plc, said by phone in Singapore. The drop in stockpiles “is going to slow that decline in prices; further downside momentum is going to be limited. In the longer term, as output slows more, it’s going to create further upside pressure particularly in” the fourth quarter, he said.
Prices are expected to average 3,700 ringgit a ton in the last three months of the year and output will undergo a “severe structural slowdown” because of the ageing profile of plantations in Southeast Asia, Standard Chartered wrote in a report dated April 30.
Output in Malaysia will drop in the first half from a year earlier, Dorab Mistry, a director at Godrej International Ltd., said March 27. From March, production each month will be less on a year-on-year comparison, and the low cycle may end in November, he said March 7. Production for the first four months of the year is 2.7 percent lower than the same period in 2011, according to board data.
The July-delivery contract advanced as much as 1.5 percent to 3,384 ringgit a ton on the Malaysia Derivatives Exchange and traded at 3,370 ringgit at 3:40 p.m. in Kuala Lumpur. Futures are up 6.1 percent this year.
Palm-oil exports from Malaysia dropped 6 percent to 450,269 tons in the first 10 days of May from the same period a month earlier, surveyor Intertek said today.
“I’m not overly surprised at exports because Indonesia is now a more competitive player and we also understand that they’re building capacity at a fairly brisk pace,” said Ofon. “I would imagine that a lot of the imports might defer to Indonesia and that may limit the amount that comes out of Malaysia.”
Palm-oil companies are increasing their refining capacity in Indonesia to take advantage of the tax benefits, which give them an advantage over refineries in Malaysia, Adrian Foulger, head of food and beverage research at Standard Chartered Plc, said May 8.
Wilmar International Ltd. (WIL), the world’s biggest palm-oil processor, plans to spend more than $100 million to boost its refining capacity in Indonesia by 50 percent, Chief Operating Officer Martua Sitorus, said today. The company won’t cut capacity in Malaysia, he said.
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