Palm exports from Malaysia slump to seven-year low on China

[KUALA LUMPUR] Palm oil shipments from Malaysia, the world's biggest producer after Indonesia, tumbled in February to the lowest since June 2007 as exports to China dropped during the Lunar New Year festival.

Sales decreased 18 per cent to 971,640 metric tons from January when the drop was 22 per cent, according to Malaysian Palm Oil Board data. The median estimate in a Bloomberg survey published March 6 was for a fall to 1.08 million tons. Exports to China plunged 70 per cent to 64,765 tons, the data show.

Palm oil, used in food and fuel, lost 23 per cent in the past year as a collapse in crude oil costs cut the appeal of cooking oils as biofuel. Global supplies of soybeans, used to make an alternative oil, expanded to a record. China, the largest palm oil importer after India, was on a week-long break for the New Year in February.

"The big drop was in shipments to China because of the Chinese New Year period - it's unusually low," Alvin Tai, an analyst at RHB Investment Bank Bhd, said by phone in Kuala Lumpur. "Inventory is actually on the low side," in China, so there should be some recovery in exports, he said.

Futures fell as much as 2.2 per cent to RM2,221 (S$829) a ton on Bursa Malaysia Derivatives, the lowest level for a most-active contract since Feb 24, and traded at RM2,231 by 5:11 pm in Kuala Lumpur.

Production declined 3.4 per cent to 1.12 million tons, the lowest since February 2011 and stockpiles dropped 1.5 per cent to 1.74 million tons, the smallest since July, the palm oil board said in a statement e-mailed on Tuesday.

Reserves will keep dropping through June and will probably fall below 1.5 million tons, Dorab Mistry, director at Godrej International Ltd, said last week. The lowest stockpiles in four years will boost palm to RM2,500 by May and then drop to RM2,100 by December as output recovers, he said.

The decline in inventories may be curbed as production will rebound from March and exports will continue to decrease, Chandran Sinnasamy, executive director at LT International Futures Sdn, said by phone on Tuesday. In the first 10 days of March, shipments fell 12 per cent from a month earlier to 262,168 tons, according to Intertek, a surveyor.

Weak consumer demand continues to put pressure on prices despite a weaker Malaysian ringgit, which makes palm cheaper for overseas buyers, according to Rabobank International. Soybean oil supplies from the large South American soybean crop are also weighing on palm, analysts led by Tracey Allen wrote in a report e-mailed on Feb. 26.

"This year, what would be capping palm demand would probably be the abundance of soybeans," RHB's Mr Tai said. "Demand is weakish, but what we are expecting is that supply is even weaker, which should limit the downside for prices."

BLOOMBERG