Malaysia palm oil stocks likely grew in September

06.10.2016

Malaysia's palm oil stockpiles likely grew in September from a near six-year low the previous month, expanding on rising production and a drop in demand for exports.

Increasing stocks in the world's No. 2 producer of the tropical oil could drag on benchmark prices that have already fallen 7% from five-month highs hit in late September.

Palm oil, used in everything from chocolate to cosmetics and biofuels, was at RM2,541 per tonne during the midday break on Thursday.

Inventories are expected to have risen 3.1% in September to 1.51 million tonnes, according to a Reuters poll of eight planters, traders and analysts. That would mark the first gain in stockpiles since June.

The rise in stocks comes as palm oil production is forecast to climb 4% from August to 1.77 million tonnes. That would be its highest level since last October, but its weakest September performance since 2010.

"“We're looking at Malaysian production to peak in October-November, as the drought seems to have delayed peak production months from August-September to later in the year," said Voon Yee Ping, plantations analyst at Kenanga Research, referring to dry conditions from the El Nino weather pattern.

The crop damaging El Nino brings scorching heat across South-East Asia, impacting palm yields in the world's top two producers Malaysia and Indonesia.

September exports are seen falling to 1.53 million tonnes, down 15.5% from a record 1.81 million tonnes the month before.

Demand in September slowed from August's record high, said a trader from Kuala Lumpur, while October exports are expected to weaken further.

"“Diwali buying is all done, so exports in... October should be poor," he said. The Hindu festival of Diwali, widely celebrated in top palm consumer India, falls in late October.

The trader added that benchmark prices would not decline sharply as stockpiles should remain around 1.50 million tonnes at the year-end.

Leading analysts forecast contrasting movements in palm prices for the final quarter of the year.

Thomas Mielke, editor of newsletter Oil World, sees them reaching RM3,000, while Dorab Mistry, director of Godrej International, predicts a fall to RM2,200.

The median figures from the Reuters survey imply Malaysian consumption of 442,905 tonnes in September.

The Malaysian Palm Oil Board will release official data on Oct 10.

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