KUALA LUMPUR: Malaysian palm oil end-stocks shrunk to their lowest in six months as the aftermath of flooding in the Borneo region reduced production to its weakest since February 2011, data from the industry regulator show.
The drop in stocks could add fuel to a rally in benchmark prices, which last week recorded their biggest weekly climb in six years, after the world’s No. 1 producer Indonesia approved a near-threefold rise in biodiesel subsidies that is expected to boost palm consumption.
The Malaysian Palm Oil Board (MPOB) said inventories in Malaysia, the No. 2 palm producer, fell 12.2% in January to 1.77 million tonnes, touching their lowest since July.
The smaller stocks, in line with a Reuters poll, were mostly attributed to a plunge in January crude palm oil production, which fell 15% to 1.16 million tonnes from December – slightly more than estimates for a 13% decline. Lacklustre export demand stemmed a further drop in stocks.
Exports of Malaysian palm oil fell 22.1% in January to 1.18 million tonnes, according to the MPOB. Shipments of biodiesel nearly halved to 10,490 tonnes compared with December.
Cargo surveyor Intertek Testing Services reported earlier that shipments of Malaysian palm oil fell 16% in the first 10 days of February, compared with the same period last month, due to poor demand from key buyers India and China.
Ahead of the MPOB report, the benchmark April contract on the Bursa Malaysia Derivatives Exchange rose 1% to trade at RM2,339 per tonne.
“The MPOB figures are relatively neutral to prices,” said Chandran Sinnasamy, a trader at LT International Futures in Malaysia.
“The bulls may attempt to push above RM2,350 to attract another rally to take profits. Failure may soften prices to RM2,270-RM2,300,” he added.
Market participants said the increase in Indonesia’s biodiesel subsidises had helped palm oil garner a more supportive outlook as it may translate to more stocks being blended into biofuel.
However, any gains may face stiff headwinds from soaring supplies of rival oilseeds and volatile crude oil markets which could dent the tropical oil’s food and fuel uptake. — Reuters