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

KUALA LUMPUR: Malaysian palm oil end-stocks, which rose to breach the three million-tonne mark in November, are expected to increase further as output continues to exceed demand, said analysts.

Industry regulator Malaysian Palm Oil Board’s (MPOB) official data, released yesterday, show palm oil stocks rising 10.5% to 3.01 million tonnes in November from 2.72 million tonnes in October, the highest stockpiles in nearly two decades.

Month-on-month (m-o-m), palm oil production in November slid 6.09% to 1.85 million tonnes. Exports fell 12.9% to 1.375 million tonnes.

Following the release of the MPOB’s official data, plantation stocks dominated Bursa Malaysia’s list of top decliners.

Sime Darby Plantation Bhd fell as much as 5.3% or 25 sen to RM4.44, before finishing the day at RM4.48; United Plantations Bhd closed 48 sen or 1.8% lower at its intraday low of RM26.28. Kuala Lumpur Kepong Bhd and Batu Kawan Bhd were not spared as well, as they slid 24 sen and 20 sen to RM23.90 and RM16.50 respectively, at the end of yesterday’s trading.

Amid high production levels and a continued weakness in global demand, analysts believe the figure will continue rising in the final month of 2018.

According to Kenanga Investment Bank Bhd research analyst Lavis Chong, palm oil production is likely to remain high despite showing signs of a slowdown on a m-o-m comparison.

“I believe the inventory level will continue inching up next month (December).

“While production is expected to remain high, demand from China, one of the largest importers, is also traditionally weaker in December due to the winter season, although this should be cushioned by exports to the EU and US,” Chong told The Edge Financial Daily.

Echoing similar sentiments, Singapore-based Palm Oil Analytics analyst Sam Yen pointed out that cargo surveyors had been reporting, for the first 10 days of December, a decline of some 3% in shipments from the same period last month.

“It is unsurprising we have hit it (the high inventory levels) since exports have been fairly weak over the last three to four months, and it looks like we are heading towards another month of weak exports. Global demand for palm oil has been stagnant,” he said, adding that Malaysian stockpiles could finish the year at 3.1 million tonnes.

However, given the current trends, Yen sees no huge impact on crude palm oil (CPO) prices. He has forecast CPO prices averaging at RM2,000 per tonne with Malaysian stockpiles ending the year at 3.1 million tonnes.

“I don’t think it will weigh too dramatically on CPO prices. It will keep prices at the current level but I think the market is already depressed as it is. The market has seemingly accepted that the stockpiles will continue growing until end-2018.”

Meanwhile, Chong said: “We believe prices have somewhat bottomed in November and will recover slightly in the next few months on the back of the Lunar New Year festivities, where there will typically be a pickup in demand.”

He has forecast CPO prices averaging at RM2,300 per tonne this year, before improving to RM2,400 in 2019. Yesterday, the benchmark palm oil contract for February delivery closed RM44 higher at RM2,042 per tonne.