KUALA LUMPUR: Palm oil stockpiles in Malaysia probably climbed to the highest since December as production in the world’s second-largest grower rose to a six-month high.
Inventories rose 5.2 percent in April from a month earlier to 1.63 million metric tons, a second monthly increase, according to the median estimate of nine planters, traders and analysts surveyed by Bloomberg.
Production rose 9.6 percent to 1.6 million tons, the highest since October. Exports rose 3.9 percent to 1.32 million tons, the survey showed.
The Malaysian Palm Oil Board is set to release official data on May 11.
Futures slumped into a bear market last month on signs oil palms in Malaysia and Indonesia, the top two producers, are rebounding from drought.
Malaysia’s April production will probably be boosted by a stronger-than-expected recovery in yields in Sabah, while a survey of planters show companies are optimistic about production growth prospects for May, according to CIMB Investment Bank Bhd.
Supplies may also rise during a high production cycle that typically begins in the second half of the year.
“The overall picture remains that production is set to recover,” David Ng, derivatives specialist at Phillip Futures Sdn. said by phone from Kuala Lumpur. “At this point prices are factoring in increasing production in the coming months.”
Demand Outlook
The market will also assess demand ahead of major Muslim festivals, which may help futures hold at current levels, according to Ng. Palm oil declined 0.1 percent to 2,534 ringgit on Friday.
Prices have dropped 18 percent this year.
Ramadan will begin in the last week of May and will be followed by Eid al-Fitr celebrations at the end of June. The festivals, celebrated by Muslims around the world, typically drives up palm oil consumption in key buyers such as India, Bangladesh, Pakistan, and the Middle East.
“The big question” is whether demand will remain firm after the festivals, Ng said. “After the key festival season window is gone, demand may be sluggish in the June and July period. Some soybean supplies will begin to enter key markets and it’s not certain if China will gear up purchases.”
Lingering Effects
While production will rebound in the second quarter, some regions are still experiencing lingering El Nino effects and growth may fall short of expectations, according to Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd
.’s marketing division.
Benchmark prices may trade between 2,500 ringgit and 2,700 ringgit in May, he said.
Board data showed production growth in Sarawak lagged behind Sabah and Peninsular Malaysia in March.
The Malaysian Palm Oil Association, a growers’ group, estimates Sarawak output was little changed in the first 20 days of April from a month earlier, while yields in Sabah and Peninsular Malaysia were seen about 20 percent higher.
IJM Plantations Bhd. expects its palm oil production may only fully recover from April next year as some of its estates in Indonesia are still feeling the effects of El Nino, according to Chief Executive Officer Joseph Tek.
The weather pattern, which ended in May last year, typically brings dry weather to parts of Asia.
Forecasts for Malaysia’s April production ranged between 1.52 million and 1.65 million tons in the survey. All nine respondents polled by Bloomberg expect production and inventories to increase from March.
Malaysia’s imports probably dropped to 70,000 tons in April from 101,961 tons a month earlier. Estimates for domestic consumption ranged between 220,000 tons and 280,000 tons in the survey. - Bloomberg
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