Malaysian palm oil inventory likely to stay tight on robust exports, weaker yield


Malaysia's palm oil inventory is likely to stay tight even as supply picks up through the next few months due to peak production season, analysts said, after August stockpile fell to its lowest in more than five years.

Palm oil stocks in Malaysia have fallen 17% month-on-month to 1.46 million tons in August, thanks to record exports that outpaced growth in output, according to data released by the Malaysian Palm Oil Board. Overseas shipments surged 31% to 1.81 million tons while production rose 7% to 1.7 million tons in August

"We expect palm oil supply to rise month-on-month from September onwards in line with the peak production season," said CIMB Investment Bank analyst Ivy Goh. "But this would not be sufficient to cover the shortfall of 2.03 million tons due to El Nino."

Rising production, coupled with moderating overseas demand, could limit upside to palm oil prices that have gained from lingering effects of El Nino weather conditions, analysts added.

El Nino is the unusual warming of the Pacific Ocean that causes a shift of moist winds away from their more typical patterns and results in less rain. Lingering effects from the drier-than-usual weather have shrivelled oil palm trees, hurting yields this year.

Scientists said 2015 was the hottest year since record-keeping began in 1880 with average temperature in December rose to the highest in 136 years. The U.S. National Oceanic and Atmospheric Administration said the scorching heat was "strongly influenced" by strong El Nino conditions.

Production of the edible oil, used in everything from soap to snacks, has declined 17% on a year-on-year basis, and "this suggests that the impact of El Nino is still being felt," said MIDF Amanah Investment Bank analyst Alan Lim.

Palm oil output typically gains pace in September and October before moderating towards the year-end. Normal weather condition has also returned to key plantation areas in Malaysia and Indonesia, a region in the Southeast Asia that collectively produces more than 80% of the global supply of palm oil.

Export to India, the world's largest importer of palm oil, more than doubled to 428,652 tons while shipment from China jumped 42% to 298,723 tons on pre-festival demand and restocking activity.

"Looking ahead we expect demand to moderate with Chinese palm oil stock levels stabilizing, while high spot prices likely to increase preference for soybean oil in markets such as India and Pakistan," said Kenanga Investment Bank analyst Voon Yee Ping.

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