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Palm-oil inventories in Malaysia, the second-biggest supplier, probably dropped to the lowest in more than a year, a survey showed. Prices of the commodity used in everything from candy to biofuels climbed as much as 2 percent.
Stockpiles fell 3.8 percent 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 percent to 1.35 million tons from 1.27 million tons, it was 22 percent below last year’s 1.74 million tons. Exports rose 4.5 percent to 1.39 million tons. The Malaysian Palm Oil Board is scheduled to release the data on June 11.
The price plunged 17 percent from a 13-month high in April, helping to cut costs for companies such as Unilever, the world’s second-biggest consumer-goods maker. Futures fell as growth slowed in China, the biggest cooking-oils user, and the debt crisis worsened in Europe. Exports from top producer Indonesia climbed in May as importers increased purchases before the Muslim fasting month of Ramadan, a survey showed last week.
A further decline in stockpiles “should be supportive of prices,” said Alvin Tai, an analyst at OSK Investment Bank 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 August-delivery contract advanced to as high as 3,026 ringgit ($953) a ton today on the Malaysia Derivatives Exchange before closing at 3,003 ringgit in Kuala Lumpur. The most-active contract, which reached 3,628 ringgit on April 10, closed at 2,953 ringgit on June 4, the lowest level since Nov. 1.
Unilever’s Chief Financial Officer Jean-Marc Huet said April 26 that commodity costs including those for edible oils were “stubbornly high” and would be “slightly” more this year than the increase the company had forecast in February.
Exports from Malaysia gained 2.4 percent 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 percent to 1.63 million tons in May 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 gained 1.4 percent today after tumbling on June 4 to the lowest price in almost eight months. 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 & Commodities Bernard Dompok said 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 percent lower at 6.3 million tons from 6.8 million tons in the same 2011 period. Output was down 14 percent in March from a year ago and 17 percent 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 after a bumper crop in 2011 and lagged effects from El Nino,” Kenanga Investment Bank’s Lim said. Part of the effect of El Nino is that trees produce more male flowers than female flowers which won’t transform into fresh fruit bunches, he said.
Output will be lower in the first half of 2012, compared with the same period 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, 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 caused by El Nino in 2010, can hurt yields. The biological high cycle, which led to last year’s record output, ended in December, and signs of tree stress were now apparent, Mistry said March 7.
The productivity of the fully matured trees was affected by the lagged weather effect, OSK’s 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.”
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