Surprise rise in Malaysian palm oil exports boosts futures prices

13.02.2018

Palm oil prices soared as data showing an unexpected drop in Malaysian inventories added to the boost to the oilseed complex from disappointing weekend rains in Argentina.

Palm oil futures for April touched 2,555 ringgit a tonne in afternoon deals in Kuala Lumpur, their highest in nearly a month, before easing to close at 2,543 ringgit a tonne, a 1.2% gain on the day.

The headway came amid an oilseeds rally spurred by talk that much-needed rains for drought-tested crops in Argentina this weekend had fallen short of expectations in some areas, with dry conditions returning.

Mike Mawdsley at First Choice Commodities flagged, for Chicago ag futures, “higher calls due to disappointing rains in Argentina over the weekend”.

Argentina is the top exporter of soyoil - the soybean-derived rival vegetable oil to palm oil – besides being the biggest shipper of soymeal too.

Palm oil vs soyoil

However, Kuala Lumpur palm oil prices fared better than Chicago futures in soyoil, which for March added 1.1% to 32.30 cents a pound - with the outperformance reflecting Malaysia Palm Oil Board data showing Malaysian palm oil inventories of 2.55m tonnes last month.

That represented a decline of 6.7% month on month in stocks, the largest drop in a year, rather than the small increase of 0.6% to 2.75m tonnes that investors had expected.

While Malaysia’s production in January, down 13.5% month on month at 1.59m tonnes, fell a little less sharply than forecast in what is a seasonally weak time of year for output, exports of 1.51m tonnes far exceeded expectations.

Indeed, they rose by 6.0% from December, rather than dropping by 8.3% as forecast.

Tax boost

Expectations of a drop in Malaysian shipments last month had been stoked by data from cargo surveyors, with ITS putting the decline at 9.3%, and Societe Generale de Surveillance by 8.8%.

“Exports were significantly higher than we were expecting,” said Ivy Ng, regional head of agribusiness research at CIMB Investment Bank, adding that initial research suggested higher-than-forecast shipments to India, the top palm oil importer, as behind the discrepancy.

She also flagged the support to Malaysian shipments from a three-month suspension, from January, of export taxes, which had rendered the country’s exports “more competitive” compared with those from Indonesia, which has maintained a tax of $50 a tonne.

‘Exports could come off’

This dynamic offered hope for further support to exports in a month which, in February, provides the setback of Chinese new year, besides having fewer days than other months.

“Exports could come off become of Chinese new year,” Ms Ng said, with the festivities bringing an end to pre-holding stockpiling, besides meaning people off work.

Indeed, it may meant that Malaysia’s “palm oil stocks may already have peaked”, Ms Ng said, flagging the prospect of a drop in production this month, with February typically the weakest month for shipments.

Exports in the first 10 days of February, meanwhile, were up 14.7% month on month, data on Monday from ITS showed.

‘Slightly less bearish’

At London broker VSA Capital, analyst Ed Hugo said that “I’ve become slightly less bearish in my near-term outlook given we are now in the low production months and especially as the Malaysian three-month export tax holiday appears to be stimulating demand.

“Perhaps we will now see some short-term [palm oil] price strengthening.”

However, he added that looking further ahead, “I still remain a little concerned for the medium/long-term trend of palm oil exports, with the successful development of the Indonesian biodiesel sector key to future pricing”, in providing a demand source

Palm oil’s discount to soyoil has eased to about “$75 a tonne, from $90 a tonne last month, slightly decreasing the price competitiveness of palm oil”, Mr Hugo added.


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