Global palm oil stocks to 'stay tight', says USDA


The world palm oil market will "stay tight", as rising export demand slows the rebuilding of stocks in Malaysia from a nine-year low, US officials said, amid a growing debate over supply prospects.

US Department of Agriculture staff acknowledged that output in Malaysia, the second-ranked palm oil producing and exporting country, would recover sharply from the 17.7m tonnes recorded in 2015-16, when yields were depressed by dryness blamed on El Nino.

"Output has steadily risen since February, with a typical seasonal upswing" towards a high usually seen in September or October, the USDA said.

However, the recovery in production has not been rapid as many observers expected, with the USDA highlighting that volumes last month were the lowest for September in six years.

And looking ahead, "for 2016-17", which began this month, "the year-to-year production gains may recover only modestly through the expected seasonal low" expected in February.

'Stay tight'

Meanwhile, much of what extra Malaysian palm oil is produced will end up on being snapped up by importers.

"Most of the 2016-17 production gains for Malaysian palm oil may be taken up by expanding export demand," forecast rising by 900,000 tonnes year on year to 17.5m tonnes, the USDA said.

This will slow the rebuilding of stocks which last month set a nine-year low for September,

"There may not be much improvement in the low level of season-ending stocks next year.

Indeed, the global palm oil market will "stay tight as low stocks offset output gains".


The comments tally somewhat with those from Thomas Mielke, editor of Oil World, last week at a much-watched industry conference, where he forecast world supplies of palm oil remaining tight until March, before they are rebuilt by a rise in production.

He forecast world output rebounding by 5.7m-6.3m tonnes in calendar 2017, after a 3.3m-tonne drop to 59.2m tonnes this year.

Still, he rated palm oil prices as "undervalued at the moment", before the rise in production kicks in, seeing Kuala Lumpur futures rise to 2,900-3,000 ringgit a tonne late this year, or early in 2017.

'Massive rebuilding of stocks'

However, Dorab Mistry – a leading sector analyst, and director at Indian consumer goods company Godrej - forecast a "massive rebuilding of stocks" in Malaysia and top producer Indonesia in 2016-17.

"It is too early to forecast Malaysian and Indonesia production for calendar year 2017 but it is more than likely to exceed the record production of 2015," Mr Mistry told the conference.

Worldwide, he forecast palm oil output recovering by nearly 6.5m tonnes as measured over 2016-17 or calendar 2017.

"Most of the additional supply will simply replenish stocks," he said, although added that "currently I do not expect stocks to become burdensome".


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