Malaysia's Oct palm stocks seen at 19-month high as exports stutter

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KUALA LUMPUR (Nov 6): Malaysian palm oil stocks likely rose further above the 2-million-tonne mark to a 19-month high at the end of October as exports of the tropical oil dipped, a Reuters survey showed.

High inventory in the world's No.2 producer after Indonesia could dent a recovery in benchmark Malaysian prices that have risen about 19 percent from a more than five-year low of 1,914 ringgit ($586.94) per tonne hit in early September.

Malaysian palm oil stocks were expected to have risen 3.4 percent to 2.16 million tonnes by the end of October, the highest since March last year, according to a median survey of five planters, traders and analysts.

Crude palm oil (CPO) output was seen easing 2 percent to 1.86 million tonnes from the prior month. Analysts estimate that output peaked in August at a record 2.03 million tonnes.

The drop in production was, however, offset by bleak exports, contributing to the expected rise in end-stocks.

The poll pegged overseas sales of Malaysian palm oil at 1.58 million tonnes for October, down 3.1 percent from September.

Cargo surveyor data for the same period showed that while demand from most major buyers was firm, exports to the world's No.1 edible oil consumer India had weakened last month.

LOCAL CONSUMPTION

The median figures from the survey implied domestic consumption in October of about 250,469 tonnes.

DEMAND CONCERNS STAY

While bigger stockpiles will continue to weigh on palm prices, traders and analysts said factors like prices of competing soy and crude oil will also give direction to benchmark Malaysian futures.

"Now the trade is more focused on grains and crude oil, and whether low palm prices can stir demand," said a trader with a local commodities brokerage in Kuala Lumpur.

Weak crude oil futures could dent demand for palm by making the latter a less attractive option for biodiesel feedstock, while lower prices of soyoil could prompt buyers to shift away from palm to the rival edible oil instead.

Brent oil prices slumped to a four-year low of $81.63 per barrel on Wednesday, as weak economic data from top energy consumer China intensified worries about demand as a global supply glut grows.

The U.S. soyoil contract for December, which is commonly tracked by palm, and the most active January soybean oil contract on the Dalian Commodities Exchange have both plunged about 18 percent so far this year, outstripping palm's losses of around 15 percent.

The discount of free-on-board refined palm olein <POL-MYRBD-M1> to Argentina soyoil <BO-ARGUPR-P1> has narrowed to around $66 from around $130 at end-August.

Demand for palm oil is also set for a seasonal slowdown in winter as cold weather solidifies the oil and makes it unusable.

LOWER SUPPLIES AHEAD

But projections for a drop in output in the top two producers of palm oil should help keep a floor under prices, the survey participants said.

Malaysian palm prices have risen in the past two months and last week posted their biggest weekly gain in nearly a year, fuelled by bullish projections from industry experts that palm supplies could ease into 2015 and eat into stockpiles.

Leading vegetable oil analysts expect prices to rise moderately towards the end of the year and to 2,500 ringgit by March, up 10 percent from current levels of 2,272 ringgit, but gains could be capped if comparative oil markets drop further.

"The good news is that the crude palm oil production from Malaysia and Indonesia has peaked in either August or October, and we could start to see a seasonal decline in production from now till February 2015, which will be supportive of CPO prices," said CIMB Investment Bank analyst Ivy Ng.

"Our only concern is the recent pick-up in prices has eroded CPO's competitiveness against other edible oils and crude oil prices."

Breakdown of October's estimates (in tonnes):

Range Median Production 1,780,000 - 1,920,000 1,858,961 Exports 1,470,000 - 1,600,000 1,578,351 Imports 10,000 - 120,000 40,000 Closing stocks 2,115,000 - 2,220,000 2,160,000 * Official stocks of 2,089,859,tonnes for September, plus the above estimated output and imports give a total October supply of 3,988,820 tonnes. Based on the median of the exports and closing stock estimates, Malaysia's domestic consumption in October would be 250,469 tonnes. (1 US dollar = 3.34 Malaysian ringgit) (1 US dollar = 6.1148 Chinese yuan)