Palm fresh fruit bunches are delivered to a mill in Johor August 24, 2016. – Reuters
CPO production down in December, the biggest drop last year
KUALA LUMPUR: Palm oil stockpiles in Malaysia likely fell last month for the first time since August as production in the world’s second-largest grower dropped by the most in almost a year.
Stockpiles fell 2.4% from November to 1.62 million tonnes, according to the median of eight estimates from planters, traders and analysts surveyed by Bloomberg. Estimates in the poll ranged from 1.46 million tonnes to 1.70 million tonnes, with two respondents forecasting an increase.
Crude palm oil production fell 8.9% to 1.43 million tonnes, the biggest drop since January 2016. Exports weakened for the fourth straight month to 1.31 million tonnes, a 4.4% drop, to the lowest since June, the survey showed.
The price of the commodity used in everything from cooking oil to lipstick surged 25% in 2016, capping the biggest rally since 2010 as the lingering effects of one of the strongest El Ninos on record curbed production in the biggest growers. December output of 1.43 million tonnes would take Malaysia’s 2016 production to 17.28 million tonnes, 13% less than 2015 and the lowest since 2010.
The weak production alongside small stockpiles could keep prices at about RM3,000 a tonne in the first quarter, Maybank Investment Bank analyst Ong Chee Ting wrote in a Jan 4 report.
“Low supplies will underpin prices,” Donny Khor, deputy director of futures and commodities at RHB Investment Bank Bhd said, adding that the drop in the ringgit is also supporting prices.
The ringgit was traded at RM4.4975 per US dollar on Wednesday, the lowest since 1998.
Palm oil for March delivery on Bursa Malaysia Derivatives closed 0.7% lower at RM3,141 on Wednesday.
Flooding in the eastern coast of Peninsular Malaysia may further hurt production as it prevents workers from harvesting and hinders transport of fruit to crushing mills. Floods in Kelantan have “severely affected” estates owned by Kuala Lumpur Kepong Bhd, Malaysia’s third-largest producer, according to plantations director Roy Lim.
Harvesting and processing was disrupted for four days up to Wednesday and one mill was marooned, he said.
Floods in Kelantan and Terengganu caused some 23,000 people to be evacuated as of Wednesday afternoon, Bernama reported.
The Kelantan official flood-monitoring website showed roads were closed and some rivers breached dangerous levels. The situation may worsen with the meteorological department forecasting more rain in the two states through to today.
“There’s some fears that the floods may spread wider to other areas,” RHB’s Khor said “If the floods get serious and affect plantation areas, prices will breach RM3,200 and try for RM3,300.” Flooding can also affect oil quality, he said.
Looking forward, prices may drop sharply in the second quarter as production recovers, helped by strong rainfall in the second half of 2016, according to Maybank’s Ong. Palm oil companies with a higher percentage of young trees, and those badly affected by the drought in 2015, can expect to see a stronger rebound in output, he said.
Malaysia’s imports probably fell to 50,000 tonnes in December from 63,491 tonnes. Estimates for domestic consumption ranged between 200,000 tonnes and 250,000 tonnes in the survey. – Bloomberg