Palm-oil stockpiles in Malaysia, the world’s second-biggest producer, probably climbed the most in 10 months in July as output increased and exports fell, easing supply concerns as a drought cuts U.S. soybean yields.
Stockpiles gained 10 percent to 1.87 million metric tons from 1.7 million tons in June, which was the lowest since April 2011, according to the median in a Bloomberg survey of four analysts and one plantation company. Production rose 9.5 percent to 1.61 million tons, the survey showed. While that’s the highest in eight months, it’s 8 percent below the 1.75 million tons a year earlier. Exports declined 9.8 percent to 1.38 million tons. The Palm Oil Board releases the data on Aug. 10.
Rising supplies of palm oil, used in everything from candy to instant noodles and fuel, may help curb a surge in global food costs as the worst U.S. drought in a generation wilts crops from soybeans to corn. Futures have fallen 20 percent since reaching a 13-month high in April, cutting costs for users such as Nestle SA (NESN), the largest food company, while potentially hurting profits at producers including Sime Darby Bhd. (SIME)
“If demand picks up from China and India, we probably won’t see too big of an increase in stockpiles,” said Alvin Tai, an analyst at OSK Investment Bank Bhd. Inventories may reach as high as 2 million tons before falling, he said. Tai expects prices to average 3,000 ringgit this year.
Weakening demand for palm oil may outweigh the impact of a year-on-year drop in Malaysian output and prices may decline to 2,700 ringgit by year-end unless the U.S. does more to stimulate growth and boost demand, according to Dorab Mistry, director of Godrej International Ltd.
Exports from Malaysia dropped 15 percent to 1.23 million tons last month, surveyor Intertek said July 31. Sales were 1.53 million tons in June, according to the palm oil board.
“Sagging export-demand will keep weak prices intact” although output fell about 8.9 percent in the the first seven months of the year, said Nagaraj Meda, managing director of Hyderabad, India-based TransGraph Consulting Pvt.
The production estimate for 2012 was cut to 18.5 million tons from an 19 million tons earlier, Malaysia’s Plantation Industries and Commodities Ministry said on Aug. 1. Output was a record 18.9 million tons last year, board data shows.
Palm oil for October-delivery ended unchanged at 2,918 ringgit ($940) a ton on the Malaysia Derivatives Exchange today. Futures reached 2,838 ringgit on June 14, the lowest level since October 2011.
Soybeans advanced to a record $16.915 a bushel on the Chicago Board of Trade on July 23. The rally lifted soybean oil’s premium over palm to $263.43 a ton, the highest level since September, and compared with this year’s low of $56.04 in March, according to data compiled by Bloomberg. December- delivery soybean oil fell 0.5 percent to 52.61 cents per pound in Chicago at 6:47 p.m. in Kuala Lumpur.
“Despite the wider spread in soyoil, crude palm oil prices have troughed at elevated levels since 2008, underlining robust structural support for the edible oils complex,” Abah Ofon, an analyst at Standard Chartered Plc, wrote in a report Aug. 1. Demand from China and India, the biggest consumers, and the Middle East will pick up in the third quarter as inventories are drawn down, he said.
Malaysia’s decision to increase a duty-free export quota for crude palm oil to 5 million tons this year may limit gains in prices as it expanded supplies, said TransGraph’s Meda.
The temporary plan is aimed at reducing inventories amid the seasonal increase in output, Malaysia’s plantation ministry said Aug. 1. The nation is seeking to reverse a slowdown in shipments after Indonesia cut export taxes in October.
Shipments from Indonesia, the largest producer, probably gained 23 percent to 1.4 million tons in July from 1.14 million tons in June, as companies took advantage of a lower export tax, according to the median of five plantation executives in a Bloomberg News survey published July 31. Output may fall 5 percent to 2 million tons, three of the respondents said. The executives didn’t provide estimates for inventories.
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