Bloomberg News

Malaysia Palm-Oil Reserves Near 13-Month Low as Output Gains

July 05, 2012

Palm-oil inventories in Malaysia, the second-biggest supplier, were probably little changed in June from a 13-month low as production advanced, potentially easing concern that global cooking-oil supplies would decline.

Stockpiles were at 1.77 million metric tons, compared with 1.76 million in May, the lowest level since April 2011, the median in a Bloomberg survey of three plantation companies and three analysts showed. Production gained 8.7 percent to 1.5 million tons, the highest in seven months, from 1.38 million tons in May. That’s 14 percent lower than 1.75 million tons in June 2011. Exports rose 5 percent to 1.47 million tons. The Malaysian Palm Oil Board will release the data on July 10.

Higher supplies may curb an 11 percent rally in palm-oil prices from an eight-month low in June. That may help lower global food prices and costs for users such as Nestle SA (NESN), the largest food company, while potentially reducing profits at producers including Sime Darby Bhd. (SIME) Prices gained as soybeans, crushed to make soybean oil, rallied after a drought parched crops in the U.S., the top grower. Similar conditions cut harvests in Brazil and Argentina that rank second and third.

“The increase in production is expected, but overall, the year-on-year decline would keep people on their toes,” Ivy Ng, an analyst with CIMB Group Holdings Bhd. (CIMB), said by phone in Kuala Lumpur. Inventories are little changed “because our exports are not as strong as some people were expecting” them to be before the Muslim fasting month of Ramadan, she said. Slower growth in China, the world’s biggest cooking-oil user, and the debt crisis in Europe has raised concern that demand may decline, she said.

Ramadan Shipments

Shipments typically rise before Ramadan when consumption of staples climbs as followers break daylong fasts with communal meals. Ramadan starts in the third week of July this year. Exports from Malaysia gained 4.9 percent to 1.45 million tons last month, surveyor Intertek said June 30. Sales were 1.4 million tons in May, according to Malaysian Palm Oil Board data.

Palm oil for September delivery rose as much as 0.9 percent to 3,150 ringgit ($996) a ton on the Malaysia Derivatives Exchange, before trading at 3,139 ringgit at 5:06 p.m. Futures reached 2,838 ringgit on June 14, the lowest level since October 2011. Soybeans for November surged 2.6 percent on July 3 to settle at $14.7475 a bushel on the Chicago Board of Trade, taking this year’s gain for the most-active contract to 22 percent.

Soybean oil’s premium over palm advanced to $213.38 a ton on June 29, the highest level since October and compared with this year’s low of $56.04 in March, according to data compiled by Bloomberg. December-delivery soybean oil climbed 1.6 percent to settle at 53.88 cents per pound in Chicago on July 3.

Global Supplies

Global oilseed output may jump 8.4 percent to 471.9 million tons in the year that will begin Sept. 1 as South American soybean harvests recover from the previous year’s drought, researcher Oil World said June 26. Reserves may drop to 54.7 million tons on Aug. 31, before rising the following year to 61.7 million tons, it said. The dry weather in the U.S. may hurt developing soybeans, especially if it persists until August, when plants enter the pod-setting and filling stages, it said.

Demand in India, the biggest importer of palm oil, as well as in China and the Middle East may pick up in the third quarter as stockpiles are drawn down, Abah Ofon, an analyst at Standard Chartered Plc, wrote in a report June 26, citing palm oil as among his top picks for that quarter.

Shipments from Indonesia, the world’s largest palm-oil producer, probably gained 9.5 percent to 1.5 million tons in June from 1.37 million tons in May, a Bloomberg survey published last week showed. Output and stockpiles were little changed at 2.1 million tons and 1.85 million tons, respectively, it showed.

First Half

Malaysia’s production for the first six months was 8.7 percent lower at 7.84 million tons from 8.59 million tons in the same 2011 period, the survey showed. Output dropped 17 percent in April from a year ago and plunged 21 percent in May, data from the board shows.

Malaysia’s output may decline as much as 900,000 tons from January to July from a year earlier, Dorab Mistry, director at Godrej International Ltd., said June 7. A rebound is unlikely before August at the earliest, he said. Production may recover in the second half, to reach 19 million tons this year as harvesting peaks in the coming months, Choo Yuen May, director- general of the nation’s palm oil board, said June 7. Output was a record 18.9 million tons in 2011, according to the board.

“Global crude palm oil production reached its peak in the second quarter of 2011 and is not expected to repeat that similar feat this year,” Willy Gunawan and Agus Pramono, analysts at PT Indo Premier Securities, wrote in a report dated July 3. “The unusually high palm oil production in Malaysia would have exhausted the oil-palm trees in 2011.” Indonesia’s yields are expected to be little changed this year, they said.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net


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