Upcoming monsoon may ease Malaysia's 21-month high palm inventory: analysts

13.11.2017

Although Malaysian palm oil inventories has risen to the highest level in 21 months, a heavier-than-usual monsoon may ease the inventory, thus support the crude palm oil (CPO) prices, analysts said.

According to Malaysian Palm Oil Board's data announced on Friday, Malaysian palm oil inventories surged 39 percent year-on-year or 8 percent month-on-month to 2.19 million tons in October, the highest level since January 2016.

The palm production also jumped 20 percent year-on-year or 13 percent month-on-month to 2.01 million tons, the highest level since Oct 2015.

While high inventories may temporarily pressure CPO price on the downside, as the northeast monsoon which typically brings heavy rainfall approach, Maybank Kim Eng expects output to taper off seasonally from November 2017 to February 2018.

Key to watch in November 2017 to February 2018 is the extent of the northeast monsoon rainfall judging from the recent unprecedented floods in Penang and Kedah, said the research house in a report on Monday.

"A heavier-than-usual rainfall could hamper harvesting and crop evacuation, which may result in poor production albeit temporarily," it said while expecting the monsoon may momentarily lift CPO price in the first quarter next year.

The research house's CPO price forecast for this year was maintained at 2,700 ringgit (644 U.S. dollars) per ton.

Based on rainfall and production data in 2014, UOB Kayhian projects that excessive rainfall would affect harvesting activity and could lead to CPO production dropping 14 percent to 22 percent month-on-month for November and December respectively.

Should there be higher-than-usual rainfall, total CPO production in 2017 could potentially come in lower from market expectation of 19.2 million to 19.3 million tons, which could support current palm prices momentum, said the report.


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