Palm oil inventories seen to have risen in June

This comes as production outpaces falling exports

KUALA LUMPUR: Palm oil inventories in Malaysia probably rose in June as production in the world’s second-largest grower outpaced sluggish exports.

Stockpiles rose 1.9% from a month earlier to 1.59 million metric tonnes, according to the median estimate of eight planters, traders and analysts surveyed by Bloomberg.

Crude palm oil production fell 0.6% to 1.64 million tonnes, the first monthly decline since February. Exports slumped 8.6% to 1.38 million tonnes, dropping for the first time in four months, the survey showed.

The Malaysian Palm Oil Board is set to release official data on July 10.

Palm oil futures extended their drop in the second quarter, with prices falling for a sixth month in June. Market participants are betting on production in Indonesia and Malaysia, the world’s top growers, to increase during the seasonally high output cycle that typically peaks around September and October.

Prices may fall further in the second half of 2017 as supply growth accelerates and festive demand fades, OCBC Bank analyst Barnabas Gan said in a June 29 report. “Seasonal strong production in the second semester of the year may cap palm oil’s upside potential for the rest of this year,” DBS Vickers Securities Tbk analyst William Simadiputra said on Tuesday.

Malaysian production is forecast to increase 13% to 19.5 million tonnes this year, Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong said on Tuesday.

Palm oil closed 1.2% higher at RM2,538 (US$590) a tonne on Bursa Malaysia Derivatives yesterday. Prices have dropped 18% so far this year. Palm oil traders are assessing the outlook for exports on concerns demand may fade following Muslim festivals that boosted consumption. Cargo surveyor Societe Generale de Surveillance reported shipments in June fell 7.6% to 1.21 million tonnes from a month earlier.

In India, the implementation of new goods and services tax rules may see importers who held back in the past few months step in when prices fall, according to Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. While the market is expecting neutral to weak export sentiment going forward, that’s mostly been priced in, Thiagarajan said.

“Direction from here mostly depends on CBOT soybean oil, as fundamentals for crude palm oil remains weak.” Soybean oil is a common substitute for palm oil in food and fuel.

Its premium over crude palm oil was at US$156 a tonne compared with an average of about US$105 over the past year.

Respondents surveyed by Bloomberg were mixed on stockpiles and production in June. Estimates for reserves ranged between 1.51 million and 1.67 million tonnes, while production forecasts were 1.56 million tonnes to 1.74 million tonnes. June output may have been weaker as workers went on holiday for Ramadan and Hari Raya, Ivy Ng, regional head of plantations research at CIMB Investment Bank Bhd said in a July 4 note.

Malaysia’s imports were seen at 50,000 tonnes in June from 47,450 tonnes a month earlier. Estimates for domestic consumption ranged between 230,000 tonnes and 250,000 tonnes.—