The benchmark palm oil futures for November rose 1.2% to RM2,594 a tonne at the close of trade. For the week it was down 1.7%, its sharpest weekly decline in more than two months.
KUALA LUMPUR: Palm oil inventories in Malaysia likely rose for a second month in July, in the first back-to-back gain since November, as production continued to recover from stresses caused by El Nino weather.
Inventoriesrose 2.2 percent to 1.82 million metric tons in July from June, according to the median of eight estimates in a Bloomberg survey of planters, traders and analysts. Productionof crude palm oil likely rose 3.9 percent to 1.59 million tons, its fifth straight monthly rise. Exports likely surged 15 percent to 1.3 million tons, which would be the biggest climb in four months. The Malaysian Palm Oil Board will release official data by August 10.
Anticipation of higher export demand and prospects for La Nina weather in coming months have boosted palm oil futures 5.5 percent so far this week, putting them on track for the best week since February. While production in the world's second- largest grower is recovering from El Nino-induced dry weather, board data show first half crude palm oil output was 16 percent lower than last year. For July, production of 1.59 million tons would still be the lowest for the month since 2010.
“All eyes will be on August and September production,” said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn.
“We are not anticipating any double digit increase in both months.”
Malaysia's production this year may drop to between 18.2 million and 18.5 million tons from 20 million tons in 2015, he said, adding that he anticipates long-term support for prices as the market takes that into account.
Hamburg-based Oil World lowered its forecast for global production on Tuesday, saying it expects a 3.5 percent decline this year to 60.4 million metric tons. That's 200,000 tons lower than its June estimate.
The Australian Bureau of Meteorology says there's a 50 percent chance of La Nina forming this year, which may trigger heavy rains and floods that affects fruit quality and complicate harvesting.
“Production should continue its upswing in line with seasonal trends, but we expect it to stay below the five-year historical average,” said Voon Yee Ping, an analyst at Kenanga Investment Bank Bhd
.
Demand Rebound
While a second monthly gain in Malaysian palm oil reserves may weigh on futures, demand for the oil used in everything from cooking to cosmetics is set to recover, according to Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd.
“The higher demand for palm oil suggests that palm oil stock levels at the consuming countries are currently low and that palm oil prices have regained competitiveness against other edible oils,” Ng wrote in an Aug. 1 note.
Prices in August may trade between 2,300 ringgit and 2,600 ringgit a ton, she said.
Exports from Malaysia jumped 15 percent in July, according to data from cargo surveyor Societe Generale de Surveillance.
Shipments to China, the world's largest palm consumer after India, surged 68 percent to 225,856 metric tons in the month compared to June.
The contract for October delivery on Bursa Malaysia Derivatives was 1.2 percent higher at 2,444 ringgit by Thursday's close.
Palm oil has trimmed an annual loss of as much as 12 percent to a 1.7 percent decline this year, and have climbed 12 percent from its bear market close of 2,188 ringgit on July 12.
Malaysian imports were probably 20,000 tons in July from 19,636 tons in June, while estimates for domestic consumption ranged between 240,000 tons and 290,000 tons, according to the survey. - Bloomberg
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