Palm oil prices tumble, as Malaysia stocks grow despite brisk exports

11.04.2017

Palm oil prices in Malaysia slumped to six-month lows, as inventories grew much faster than expected, despite brisk exports.

Stocks of crude palm oil in Malaysia, the world's second-largest producer, rose to some 1.55m tonnes, data from the Malaysian Palm Oil Board (MPOB), showed on Monday.

This is up 6.5% from last month, and represents a much faster growth than was expected, with analysts expecting inventories fairly flat month-on-month.

Rising exports, but stocks still swell

Particularly striking is the fact that this growth in stocks came despite brisk exports, which rose by some 14% month-on-month in March, to 1.27m tones, well ahead of analyst expectations, for exports of 1.18m tonnes.

And cargo surveyor SGS reported palm oil and product exports in April 1-10 up 25% over the same period last month, at 312,489 tonnes.

But the rise in exports was more than outweighed by booming production.

March output was reported at 1.46m tonnes, the highest seen for the month of on MPOB records going back to 2008.

Production was up a hefty 20% year-on-year, and up 16.3% from February levels, and comfortably bean analyst expectations, which pointed to 1.38m tonnes.

Prices under pressure

Even before the latest supply and demand figures, palm oil prices have been languishing since January.

Prices have been under pressure from a weakens in the rival soyoil contract, even as Malaysian and Indonesian production ramps up as the lingering effects of the 2015-16 El Nino finally fade away.

Production in South-East Asia is expecting to bounce back sharply this season, due to better conditions.

May June crude palm oil futures in Kuala Lumpur finished down 2.5%, at a contract low so 2,592 ringgit a tonne.

May palm futures were also down 2.5%, at 2,687 ringgit a tonne, a six-month low for the second month contract.

Labour worries on the horizon

But on Monday Malaysian broker Oriental Pacific warned that planters in that country are "bracing for a sever labour shortage" due to lower seasonal immigration.

Oriental Pacific said that the workers "who typically stream over the border from neighbouring Indonesia to harvest crops," are staying away due to the weaker ringgit and "increased opportunities at home".

"Malaysian palm oil planters estimate about 70% of the industry's workforce comes from Indonesia, with staff traditionally drawn by the chance to earn higher wages in a culture with many similarities to their own," Oriental Pacific said.


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