Malaysia palm oil stocks seen rising to 19-month high

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KUALA LUMPUR (Oct 5): Malaysian palm oil end-stocks likely reached the 2 million tonne mark in September, their highest since February 2016, a Reuters poll showed, with production forecast to come in at its strongest monthly level in nearly two years.

Inventories at end-September are estimated to have risen 3.2% to 2 million tonnes from August, up for a third straight month, according to the median response of ten traders, planters and analysts surveyed by Reuters.

This could pressure benchmark prices of palm oil, the world's most widely used edible oil, found in a wide range of products from soap and cooking oil to food products.

Palm oil prices fell to their lowest in a month and a half earlier this week, but were up 1.2% at RM2,715 a tonne at the close of trade on Wednesday evening.

September output is expected to have risen to 1.84 million tonnes, up 1.5% from 1.81 million tonnes in August, which would be the strongest level since October 2015.

"Production in September will be slightly higher than in August on seasonal trend, but October output is expected to be much higher," said a Kuala Lumpur based trader, who expects production to peak for the year in October.

"It should be 7-9% higher as there are more working days," said the trader, who declined to be identified as he was not authorised to speak to the media.

Malaysian output usually sees peak production in August or September, but industry players say it will be pushed back to October this year due to the lingering impact of last year's El Nino dry spell.

The survey's respondents see exports having risen 7.8% in September to 1.60 million tonnes from August, as key buyers China and India stocked up ahead of major holiday periods.

India and China, the world's top two buyers of palm oil, celebrate Diwali and the Mid-Autumn festival respectively in October this year, events which typically drive up usage of the tropical oil.

While demand in September was seen at its strongest monthly levels in slightly over a year, poll respondents expect shipments to taper off at the end of the year.

"October's exports during the first half should still hold on festival demand, but beyond that there won't be much going on," said Kenanga Research plantations analyst Voon Yee Ping.

"Demand however could pick up toward end-November."

The median figures from the Reuters survey imply Malaysian consumption of 214,098 tonnes in September.

Official data will be released by the Malaysian Palm Oil Board after 0430 GMT on Oct 10.

Breakdown of September estimates (in tonnes):

  Range Median
Production 1,794,000–1,901,100 1,838,403
Exports     1,520,000–1,640,000 1,603,500
Imports     30,000–60,000 42,000
Closing Stocks 1,931,000–2,098,900 2,004,806

* Official stocks of 1,942,001 tonnes in August plus the above estimated output and imports give a total September supply of 3,822,404 tonnes. Based on the median of the exports and closing stocks estimates, Malaysia's domestic consumption in September would be 214,098 tonnes.