Malaysia's Jan palm oil end-stocks fall to lowest in six months

[KUALA LUMPUR] Malaysia's palm oil inventories in January fell to their lowest in six months, data from the industry regulator showed on Wednesday, as output of the tropical oil took a hit from a severe El Nino weather event.

Falling stockpiles could provide additional support to benchmark palm oil prices, which rallied to the highest in nearly 21 months on Friday at 2,604 ringgit (S$875.91) per tonne. The contract was down 0.4 per cent at 2,571 ringgit at the mid-day break on Wednesday amid worries over weak exports.

Stockpiles in the world's No.2 producer dropped 12.4 per cent to 2.31 million tonnes at the end of January from the end of December, according to data from the Malaysian Palm Oil Board (MPOB), sharper than the 9.3 per cent drop forecast in a Reuters poll.

A decline in production hit stockpiles, as output in Malaysia fell 19.3 per cent to 1.13 million tonnes in line with seasonal production patterns and due to dry weather linked to an El Nino, which lowers palm fruit yields and output.

"Palm prices will more or less follow the inventory trend, which I expect will be flattish throughout the whole year due to the El Nino," said Ben Santoso, an analyst with DBS Singapore.

"Peak production this year will be weaker than usual."

Leading vegetable oil analyst Dorab Mistry this week forecast that Malaysian palm supplies are likely to decline in the first half of 2016, while another industry analyst, James Fry, said Southeast Asian palm oil production could fall by 4 million tonnes.

Lower output could push palm prices to 2,700 ringgit by the second quarter of the year, predicted Mr Mistry, though traders noted export demand remained weak.

Shipments in January fell to 1.28 million tonnes, down 13.8 per cent from December's 1.48 million tonnes.

"The narrowing of spread between (palm) olein and soyoil has resulted in China turning her attention to soybeans," said Lingam Supramaniam, director at Malaysian-based commodities firm Pelindung Bestari.

"In the short run, prices will hold but once production recovers over the long run, demand could be an issue."

Malaysian palm oil shipments in the first ten days of February fell 22.7 per cent from the same period a month ago as exports to top consumer China slowed, according to cargo surveyor Intertek Testing Services.

The price discount between palm oil and its rival soyoil has been narrowing due to abundant supplies of South American soy.

As Asia's largest economy slows, China favours importing soybeans to crush into oil for domestic use, reducing palm oil imports.

REUTERS