Malaysian palm oil futures hit one-week highs on Wednesday, supported by technical buying and expectations of a slight rise in end-September inventory levels.
KUALA LUMPUR: Palm oil stockpiles in Malaysia likely rose for a third month in September to the highest level since February 2016, lifted by increasing production in the world’s second-largest grower.
Inventories advanced 3.1 percent to 2 million tonness from August, according to the median estimate of 11 planters, traders and analysts surveyed by Bloomberg. That would be the highest in 19 months and a 29% increase from a year ago.
Production of crude palm oil inched up 1.1% to 1.83 million tonnes, while exports climbed 8.1% to 1.61 million tonnes, the highest since August 2016, the survey showed. The Malaysian Palm Oil Board is set to release official data on Oct 10.
Palm oil prices in Malaysia averaged about 4% higher in September from a month earlier, helped by stronger export demand and concerns of a smaller-than-expected rise in Malaysian supplies due to a shortage of workers and lingering El Nino Effects, Ivy Ng, regional head of agribusiness at CIMB Investment Bank Bhd., wrote in an Oct. 3 note.
Futures may trade between RM2,400 and RM2,700 a tonne in October, she said. Palm for December delivery on Bursa Malaysia Derivatives was 0.9% higher at RM2,740 (US$648) a tonne by the midday break on Thursday, trimming the loss for the year to 12%.
“Even with the higher exports from festive demand, the absolute number is still lower than production,” Voon Yee Ping, an analyst at Kenanga Investment Bank Bhd
. said by phone from
Kuala Lumpur. “There’s also a big carryover of stockpiles from August. If local demand does not step up, you’ll see a growth in stockpiles," she said Wednesday.
Production estimates in the survey ranged between 1.79 million tonnes and 1.90 million tonnes, with most respondents expecting only a slight change from a month ago. The estimates for stockpiles ranged between 1.93 million tonnes and 2.10 million tonnes.
As most of the festival buying would have been completed earlier in October, there may be some risk to exports in coming months, Voon said. “We’ll see stable or flattish exports over the next few months at best, that’s why we have a somewhat bearish outlook on prices for the fourth quarter.”
“Demand for the oil, used in everything from chocolate to biofuel, will largely depend on its price discount to rival oils including its closest substitute, soyoil, said Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd.’s marketing division.
“If palm’s discount to soyoil narrows below US$100 per tonne, demand for palm may be affected," he said on Wednesday.
In top grower Indonesia, palm oil inventories likely dropped in August after dry weather curbed production, according to a Bloomberg survey released on Tuesday.
Malaysia’s imports were seen at 40,000 tonnes in September, little changed from 41,661 tonnes a month earlier. Estimates for domestic consumption ranged between 200,000 tonnes and 240,000
tonnes. - Bloomberg
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