Malaysian palm oil exports plummeted last month, pushing inventories of the vegetable oil to a record high – above even the level that investors had expected, a Malaysian Palm Oil Board report said.
However, palm oil futures suffered only modest losses, as data showing weaker production fuelled fears of a drop in output ahead in the country, the second ranked palm oil producer and exporter.
Malaysia’s palm oil stocks rose 2.6% month-on-month in November to a record high of 2.91m tonnes, the board’s data showed
That was well above the 2.84m tonnes that investors had expected, and reflected a tumble of 12.4% to 1.50m tonnes in exports from the country, the second-ranked producer and shipper of the vegetable oil.
And December got off to an even worse start, as cargo surveyor Intertek Testing Services pegged Malaysian exports at 280,445 tonnes over the first 10 days, down 36% month-on-month.
Cargo surveyor Societe Generale de Surveillance pegged exports down 34% over the same period.
But the data showed a sharp drop in production as well, by 18.9% month-on-month to 1.65m tonnes, the lowest November figure in four years.
The decline touched nerves already rattled by concerns that continued dry weather in South East Asia, blamed on the El Nino weather pattern, will cause a prolonged drop in production.
El Nino, which is caused by the cyclical warming of the pacific, causes hot dry weather in Indonesia and Malaysia, which between them produce most of the world’s palm oil.
El Nino threat
Indeed, the MPOB data come hours after the US Department of Agriculture slashed by 2.0m tonnes to 33.0m tonnes its forecast for Indonesian palm oil output in 2015-16, while cutting its forecast for Malaysian volumes by 500,000 tonnes to 20.5m tonnes
“The current strong El Nino weather pattern suppressed rainfall over a wide swath of South East Asia during the northern hemisphere summer in 2015,” the US Department of Agriculture said in a report overnight.
In both countries, “the resulting drought stress is expected to cause crop yield declines during the 2015-16 marketing year,” which began in October.
“Palm oil yields typically decline 4-12 months after a stress event has occurred,” the USDA added.
‘Stocks to come down’
Palm oil futures closed down a modest 0.3% at 2,734 ringgit a tonne in Kuala Lumpur.
“It looks like people are looking more long term,” Ed Hugo, of VSA Capital told Agrimoney.com.
“There’s an expectation that stocks are going to start coming down,” he said, noting the potential of El Nino to exacerbate a seasonal drop in productivity.
“El Nino is still strengthening, and is expected to peak in the next few months” Mr Hugo said. “The risk is to the upside.”
Mr Hugo also noted that Indonesian exports could be hit by new biofuel legislation that would increase the proportion of its crop that is used domestically, as biodiesel.
He estimated that new measures could increase Indonesian consumption by 2-3m tonnes, absorbing excess production.
(Source – http://www.agrimoney.com/news/malaysia-palm-oil-stocks-hit-record-high-as-exports-tumble–9103.html)