Palm oil futures ease, as Malaysian stocks hit 19-month high

10.10.2017

Palm oil prices dipped after data showed Malaysian stocks of the vegetable oil rising faster than had been expected, topping 2.0m tonnes for the first time in 19 months, as exports fell short of forecasts.

Palm oil stocks in Malaysia, the second-ranked producer and exporter of the vegetable oil, rose 3.9% month on month to hit 2.02m tonnes in September, the Malaysian Palm Oi Board.

The increase took stocks to their highest since February 2016, and was 14,000 tonnes above traders' expectations, as measured by a Reuters poll.

And it came despite a surprise slowdown in production, which fell for a second successive month, this time by 1.7% to 1.78m tonnes – rather than rising to a 23-month high of 1.84m tonnes as traders had forecast.

September typically sees the seasonal peak in Malaysian palm output.

"Malaysian production remains up 14% year to date, bouncing back after last year's El Niсo-impacted production levels, but the rate of year-on-year increase is decreasing as we go through the year," said Edward Hugo, analyst at London-based broker VSA Capital.

'Some discrepancy'

However, the impact on stocks of a disappointing output figure was more than offset by a weaker-than-expected export figure too, with Malaysian shipments last month pegged at 1.52m tonnes.

While a rise of 1.8% month on month, the figure came in some 88,000 tonnes short of expectations.

Indeed, Ivy Ng,  regional head of agribusiness research at Kuala Lumpur-based CIMB, highlighted that "there is some discrepancy" between the rate of exports identified by the MPOB and that shown by cargo surveyors, whose data on inspections showed shipments rising by some 10%.

The difference between the two sets of statistics "could be down to a timing issue on how cargo surveyors and the MPOB collect their data", Ms Ng told Agrimoney.com.

Stocks to grow further?

She added that the lower-than-expected Malaysian production figure for September was depressed by the month holding three public holidays, meaning disruptions to the plantations workforce,

In fact, "production could be higher in October than September", she said.

While there was "probably still room" for inventories to rise further over the next two months, "people do not expect stocks to get back to" levels of 2.8m-2.9m tonnes seen in late 2015, before El Nino-related dryness sapped production.

"Demand is pretty OK," Ms Ng said, flagging an average discount of some $158 a tonne in the price of palm oil to rival vegetable oil soyoil.

Palm oil vs soyoil

VSA's Edward Hugo said that while the MPOB data "might appear a bit bearish as we move through what may turn out to be the peak production month for 2017, rival soyoil pricing has looked a little healthier", boosted by worries over dryness delays to Brazil's soybean sowing season.

Also "key" to palm oil prices will be the strength of Malaysian exports, which cargo surveyor ITS had soared 18.1% month on month in the first 10 days of September.

Nonetheless, palm oil futures for December dropped 1.5% to 2,694 ringgit a tonne in late deals in Kuala Lumpur.


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