Malaysia, the world’s second-largest palm-oil producer, can store 5.2 million metric tons of the edible oil, according to Plantation Industries and Commodities Minister Bernard Dompok. That’s more than twice the record reserves that were being held last month as prices tumbled.
“Although prices have not been upbeat over the last few weeks, demand remains strong,” Dompok told a conference in Kuala Lumpur today, before giving the storage-capacity estimate in a press conference, citing the Malaysian Palm Oil Association.
Dompok’s comments follow speculation the country may have exhausted its capacity to store additional supplies. HwangDBS Vickers Research Sdn. said Malaysia may have run out of space in a report today that analyzed export-tax changes announced by Dompok last week. Palm oil has tumbled 22 percent this year as slowdowns in Europe and China curbed growth in overseas demand.
“We believe there may not be any spare storage capacity,” HwangDBS said in the report. The tax announcement on Oct. 12, which will take effect from Jan. 1, “did not mention how the government intends to address the issue of record palm-oil inventory in the interim,” it said.
Reserves of palm oil increased to an all-time high of 2.48 million tons last month, according to data from the Malaysian Palm Oil Board. That was the third straight increase in monthly holdings, and 46 percent above the level in June.
Dompok said Oct. 12 that the government will cut the export duty on the crude variety and abolish a duty-free shipment quota from 2013. The new rates will range from 4.5 percent to 8.5 percent, rising as prices climb from 2,250 ringgit ($734) a ton to 3,600 ringgit. The existing rate is 23 percent.
Price Plunge
Palm oil for December delivery fell 0.9 percent to end at 2,500 ringgit on the Malaysia Derivatives Exchange last week after the tax changes were unveiled, and the contract declined a further 1.5 percent to 2,462 ringgit at 12:30 p.m. today. Last month, futures dropped 16 percent as inventories climbed, the biggest drop since October 2008. The most-active price touched 2,230 ringgit on Oct. 3, the lowest since November 2009.
The export-tax changes announced in Malaysia may be negative for planters as they may get lower average selling prices, while they may benefit refining companies, according to HwangDBS. The issue of remaining space “is urgent as there may not be any spare storage capacity,” it said.
The planned changes should have been introduced immediately “as the palm-oil inventory is already at record high levels,” OSK Investment Bank Bhd. said in a report dated today. The sliding scale of rates made sense as it will encourage exports if prices are low, helping to keep inventory in check, OSK said.
Mistry’s Outlook
Reserves in Malaysia may reach 3 million tons by January, according to a forecast on Sept. 23 from Dorab Mistry, a director at Godrej International Ltd. The country’s output may be 18 million tons this year, he said then. The commodity is used in foods and biofuels.
In Indonesia, the largest producer, there is storage capacity for about 4 million tons, Deputy Trade Minister Bayu Krisnamurthi told reporters on Oct. 12. Of that total amount, about 70 percent to 75 percent is being used, Krisnamurthi said.
“It is important to maintain adequate supply of edible oils for the world market at affordable prices,” Minister Dompok told the conference. “I am optimistic that palm oil is poised to meet this challenge.”
