KUALA LUMPUR: Palm oil inventories in Malaysia probably declined to the lowest since August as production in the world’s second-largest grower dropped the most in a year and exports increased.
Stockpiles slumped 11% in January from a month earlier to 1.49 million metric tonnes, according to the median estimate of seven planters, traders and analysts surveyed by Bloomberg.
That would be the lowest level and biggest decline since August. Crude palm oil production slid 9.5% to 1.33 million tonnes, the biggest drop since January 2016, according to the survey.
Exports rose 3.9% to 1.32 million tonnes, the first increase since August, it showed. The Malaysian Palm Oil Board is set to release data on Friday.
“Nearby supplies are still very tight and this situation will continue until June,” Rajesh Modi, a trader at Singapore-based brokerage Sprint Exim Pte, said by phone. “Prices have been steady and, even when soy oil or sun oil prices are down, palm oil is still supported due to its individual strength.”
Palm oil, used in chocolate to shampoo and fuel, rallied 25% last year after one of the strongest El Nino on record hurt production in the world’s biggest producers. Output dropped 13% in Malaysia last year, while Indonesia posted its first annual drop in almost two decades.
The El Nino impact will linger through the first half of 2017, with another sharp decline in production in the first quarter in Malaysia and between the second and third quarters in Indonesia, according to plantation consultant Ganling Sdn.
Benchmark futures can rise to RM3,300 a tonne in the short term, according to Godrej International Ltd director Dorab Mistry.
Stockpiles in Malaysia may have dropped to below 1.5 million tonnes by the end of January, he said in presentation slides prepared for a conference on Friday. Futures were little changed at RM3,056 ringgit a tonne yesterday.
“February supplies will be even more tight,” said Sprint Exim’s Modi, who predicts prices could climb to RM3,350 this month.
“If there’s any news of a bad crop in soy or other crops, palm will be on fire.”
While floods inundated parts of Peninsular Malaysia last month, the impact on plantations may not be as severe as the damage wreaked in December 2014, according to Voon Yee Ping, an analyst at Kenanga Investment Bank Bhd. Sime Darby Bhd, the world’s biggest planter by acreage, said last week its plantation operations in central Johor and Pahang were only slightly affected and the flood situation is improving.
Malaysian palm oil production in January may still be 18% higher than a year earlier, the survey shows.
The first signal that Malaysian output has started to recover strongly may come around March and trigger a sharp decline in prices, according to Godrej’s Mistry, who predicts benchmark futures may drop to RM2,500 by June or July. — Bloomberg
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