KUALA LUMPUR: Palm oil inventories in Malaysia, the world’s No. 2 producer of the commodity, jumped to their highest in over a year in July as stronger-than-forecast production outpaced export gains.
Stockpiles of the tropical oil climbed 16.8% to 1.78 million tonnes from June, according to data from industry regulator the Malaysian Palm Oil Board (MPOB) . That marked the first such rise in three months.
Gains in end-stocks of palm oil, used to churn out everything from soap to chocolate, could drag on benchmark prices, which have risen over 7% so far this quarter.
The nation’s July end-stocks were at the highest level since April 2016, while the monthly gain was the strongest since April 2015. Stockpiles typically hover around the 2-million-tonne mark in the third quarter.
The climb in stocks was driven as production in July saw a stronger-than-forecast rise to 1.83 million tonnes, up 20.7% from June. Output levels were the highest in almost two years, while monthly gains were the strongest since March 2015.
“The quantum of production rebound was higher than expected,” said Alan Lim, a plantations analyst at MIDF Research.
“This could be explained by the low base effect in June. (That month) was the festival period as harvesters took leave to go back to Indonesia for Aidil Fitri. And as a result, production increased significantly in July as harvesting activity resumed.”
A trader added that earlier production forecasts may not have taken into account improving output during the last 10 days of July, which saw better harvesting in the regions of Johor, Sabah and Sarawak.
“Harvests were high then. The first 20 days of July production was not so good,” he said.
The MPOB data also showed slight gains in exports, which edged up 1.3% to 1.40 million tonnes.
The trader said that exports rose only marginally on softer demand in July, and as buyers held back in anticipation of lower palm oil prices moving forward as production rebounds.
“Going forward, people are expecting lower prices, so exports for August may be unchanged to slightly down,” he said. “If higher production is coming in, they will wait for lower prices first.”
Buyers are expected to stock up ahead of major festivities in October in India and China, the world’s top two consumers of the edible oil.
A Thomson Reuters survey had pegged inventory levels to rise 6.5% to 1.63 million tonnes in July. Production was seen up 11% at 1.68 million tonnes, while exports were seen up 4% at 1.43 million tonnes. — Reuters