This article first appeared in The Edge Financial Daily on October 11, 2018

KUALA LUMPUR: Malaysia’s palm oil inventories hit an eight-month high in September, but analysts do not think it will have much impact on crude palm oil (CPO) prices.

September palm oil inventories grew 1.45% to 2.54 million tonnes from 2.5 million tonnes in August, as palm oil output levels increased by 14.4%, partly offset by a rise in exports.

Figures released by the Malaysian Palm Oil Board showed that CPO stocks in the world’s second-largest palm oil producer grew 10.79% month-on-month (m-o-m) amid growth in Peninsular Malaysia, Sabah and Sarawak, while processed palm oil stocks fell 8.29% due to declines in the three areas.

Total production for the month grew 14.4% to 1.85 million tonnes in September from 1.62 million in August.

Palm oil exports for September surged 47.2% m-o-m to 1.62 million tonnes from 1.1 million tonnes.

Rising stock levels typically weigh on CPO prices, but TA Securities plantation analyst Angeline Chin is of the view that demand in the months of October and November will absorb the higher-than-expected September stocks.

“I think if the increase in September palm oil inventories was big then it would impact the CPO prices, but the increase was only 1.45%. The increases in exports and production were also in line with market expectations. The only thing that surprised me was palm oil exports to Europe which rose quite significantly,” she told The Edge Financial Daily yesterday.

“So, I don’t think it (higher stockpile levels) will make the CPO prices fall. I think people are more concern about the ringgit,” she added.

Chin is forecasting CPO prices to hit RM2,500 per tonne this year and fall to RM2,450 per tonne in 2019. The benchmark CPO futures contract for December closed at RM2,190 per tonne yesterday.

Another analyst with a local research house who declined to be named said the higher inventory in Malaysia and Indonesia was due to higher CPO production rather than consumption.

“We expect CPO prices to trade higher than current levels of about RM2,100 per tonne as we think the global production growth for palm oil is likely to slow down towards the year end with the monsoon season,” she said in an email response.

Going forward, she expects demand would continue to be healthy, underpinned by exports and domestic consumption from the food and energy industries.

“Currently, I am factoring in a CPO average selling price of RM2,100 per tonne to RM2,400 per tonne for the second half of 2018.

“For full-year 2018, we forecast average CPO prices to be at RM2,350 per tonne,” the analyst said.