Crude palm oil futures on Bursa Malaysia hit MR3,000/mt for the first time since Sep 2012

25.11.2016

Crude palm oil front-month futures on Bursa Malaysia were at the MR3,000/mt ($675.30/mt) level at the end of the Platts Market on Close Assessment process at 4:30 pm Singapore time (0830 GMT) Thursday, for the first time since September 2012 due to a decline in palm oil production in Malaysia.

Excessive dry conditions, due to the El Nino event that hit Southeast Asia earlier this year, led to the drop in palm oil output.

Malaysia was hit harder than Indonesia by El Nino, and although production had been impacted during all of 2016, keeping prices on an upward trajectory, this is the first time that the psychological barrier of MR3,000/mt has been breached.

According to October data from the Malaysian Palm Oil Board, or MPOB, palm oil production fell to 1.68 million mt from 1.72 million mt in September -- too early to be part of the regular low production season, which hits the region around December.

Market participants attributed the early fall in production to the lingering effects of El Nino, which was officially declared over around the middle of the year.

They also said that although production in Malaysia during the first half of November was reported at record lows, excessive rains in Malaysia's main palm growing region of Sabah provide hope that production will increase in 2017.

Lower palm oil production in 2016 has also adversely impacted Malaysian inventory levels, which fell to 1.46 million mt in August -- the lowest level since since January 2011, when stocks stood at 1.42 million mt.

Meanwhile, rising palm oil prices, especially in the second half of 2016, have narrowed the palm oil spread with other superior oils, such as soybean oil, and that combined with other market factors, such as the periodic release of China's strategic vegoil reserves during 2016, have impacted import volumes into major markets like China and India.

Despite demand spikes during festive seasons, such as Deepavali and the Mid-Autumn Festival, overall demand has remained rather muted.

Data from MPOB shows that palm oil exports from Malaysia fell to 1.43 million mt during October, from 1.45 million mt in September and 1.82 million mt in August.


platts

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