Malaysian palm oil production fell last month to its lowest since at least 2009, underlining drought damage worries – but futures in the vegetable oil eased nonetheless, amid some disappointment on demand.
Palm oil output in Malaysia, the second-ranked producer of the vegetable oil, after Indonesia, fell by 7.7% month on month in February to 1.04m tonnes, the Malaysian Palm Oil Board said.
That was below the figure of 1.07m tonnes that investors had expected, and indeed was the weakest monthly production result on data going back to the start of 2010, underling the weakening expectations for output in Malaysia, and Indonesia, following drought blamed on El Nino.
Concerns were underlined at a conference on Wednesday at which Dorab Mistry, the influential vegetable oils analyst, forecast world palm oil output falling by 3m tonnes in 2015-16, on an October-to-September basis, including a 1.5m-tonne drop to 18.4m tonnes in Malaysian volumes.
In Indonesia, the national palm oil association, Gapki, has forecast a 400,000-tonne drop to 31.1m tonnes in domestic output of the vegetable oil in 2016, which would represent the first year-on-year decline since 1998.
Demand reversal
Nonetheless, palm oil futures eased by 0.4% to stand at 2,568 ringgit a tonne in late deals in Kuala Lumpur, after the Malaysian Palm Oil Board data showed Malaysian inventories falling by less than investors had expected, despite the weak production figure.
Malaysia’s palm oil inventories were, at 2.17m tonnes, down 6.1% month on month, but ahead of market expectations of a figure of 2.10m tonnes.
“It looks like it is the higher-than-expected stocks figure which has caused prices to pull back a little bit,” said Edward Hugo at London broker VSA Capital, told Agrimoney.com, adding that “stocks do still remain about 25% ahead of last year”.
The, relatively, buoyant February stocks figure represented in part a drop in exports of 15.2% month on month, to 1.09m tonnes, a touch below market expectations.
However, Thursday’s data also implied a tumble in Malaysia’s own consumption of the vegetable oil.
“Exports year-to-date are now up 9% whereas domestic consumption is down 30% – the opposite of what was expected at the start of the year, with biodiesel mandates forecast to increase domestic demand and reduce exports,” Mr Hugo said.
Indian imports
In fact, separate data on Thursday from cargo surveyors showed a further pick-up in Malaysian exports so far this month, with Intertek pegging the increase at 31%, compared with the first 10 days of February, and Societe Generale de Surveillance putting the rise at 57%.
Both companies put higher demand from the Indian sub-continent as central to the increase, with SGS saying that volumes to the region were, at 80,500 tonnes, near-double those in the first 10 days in January.
Mr Mistry on Wednesday, forecasting palm oil prices rising to 3,000 ringgit a tonne or more, put demand in countries such as India, where the vegetable oil is used largely for cooking, as central to this estimate.
“We have to take prices to levels where demand does not expand and is made to shrink somewhat in price-sensitive markets like India,” he said.
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