KUALA LUMPUR (July 4): Malaysia's palm oil inventories are forecast to have dropped to a nine-month low in June as production in the world's second largest producer fell faster than exports, according to a Reuters survey.
Low stockpiles could support benchmark palm oil prices which slid 4% in June as weak demand pummeled futures to a nearly two-year low.
Palm oil inventories dipped 1.2% from May to 2.15 million tonnes at end-June, declining for a sixth straight month, according to the median estimate among eight planters, traders and analysts surveyed by Reuters.
Production last month is forecast to have declined 11.1% from May to 1.36 million tonnes. That would be its sharpest monthly fall and lowest level since February. It would also be the weakest output for June since 2007.
Poll respondents said the production drop was largely due to plantation workers across Malaysia taking leave during the Muslim festival of Eid in mid-June.
"We attribute the larger than historical average month-on-month fall in output to lower productivity as many workers took time off," said Ivy Ng, regional head of plantations research at CIMB Investment Bank.
Ng said the sharpest production declines were seen in Sabah, Peninsular Malaysia and Sarawak. The East Malaysian states of Sabah and Sarawak are the country's two largest palm oil producing states.
The post-holiday labour shortage in Malaysia and a backlog of farmers trying to sell fruit to Indonesian mills could drag down palm oil output in the world's two biggest producers.
Malaysia's exports are expected to have fallen 7.8% from May to 1.19 million tonnes in June, declining for a third month in a row and the smallest export volume in more than a year, according to the poll.
"Buying from China and the European Union was lower in June," said a Kuala Lumpur-based trader, following higher purchases in previous months.
"In anticipation of higher production in Malaysia, they could be trying to reduce their purchases," he said, referring to an expected seasonal rise in production during the third quarter of the year which usually pressures prices.
The official data will be released by the Malaysian Palm Oil Board after 0430 GMT on July 10.
The median figures from the Reuters survey puts Malaysia's consumption last month at 227,555 tonnes.
Breakdown of June estimates (in tonnes):
|Production||1,321,000 - 1,600,000||1,356,500|
|Exports||1,159,000 - 1,400,000||1,190,000|
|Imports||30,000 - 60,000||35,624|
|Closing Stocks||1,957,668 - 2,193,000||2,145,000|
* Official stocks of 2,170,431 tonnes in May plus the above estimated output and imports give a total June supply of 3,562,555 tonnes. Based on the median of exports and closing stocks estimate, Malaysia's domestic consumption in June would be about 227,555 tonnes.