Palm oil stockpiles in Malaysia seen falling to 14-month low

[KUALA LUMPUR] Palm oil stockpiles in Malaysia probably fell to the lowest since February 2015 amid concerns El Nino weather conditions may continue to crimp a recovery in production in the world's second-largest grower.

Inventories eased 3.7 per cent to 1.82 million metric tons in April from a month earlier, dropping for a fifth straight time, according to the median of seven estimates in a Bloomberg survey of planters, traders and analysts. That would be the longest declining streak since June 2013.

Production rose 9 per cent to 1.33 million tons while exports fell 6 per cent to 1.25 million tons, the survey showed. The Malaysian Palm Oil Board will release official data by May 10.

Futures in Kuala Lumpur have retreated 6 per cent from a two-year peak in March on concern over demand and anticipation that production would recover from El Nino-induced drought. Yet while El Nino conditions are fading, the impact of the scorching weather pattern on palm oil yields may not be completely over.

"Production may be going up, but it may not be a strong pick up and will trail last year's production, depending on how the weather is for the rest of the second quarter," Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd, said by phone.

Production last April was 1.69 million tons. Stockpiles may continue to decline toward the third quarter as yields in some parts of Malaysia remain crimped by El Nino, Ms Ng said.

Global output may be smaller than previously expected and fall to 61.25 million metric tons this year, the first decline in over 20 years, industry researcher Oil World said in a May 3 report.

The lagging impact of the dry weather will continue throughout 2016 into 2017, the Hamburg-based group said.

Weaker production and stockpiles in Indonesia may also lift demand for Malaysian products, Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd's marketing division said in May 5 e-mail.

Indonesia's crude palm oil production fell to 2.32 million tons in March from a month earlier, while stockpiles dropped to 3.02 million tons from 3.43 million tons.

Mr Phang expects palm oil to trade between 2,600 ringgit and 2,800 ringgit over the next few weeks. Futures closed the morning session in Kuala Lumpur at 2,611 ringgit.

"It's not like Indonesia will have a bumper crop," Ms Ng said. "As long as both countries have weaker year-on-year crop, then supplies will remain tight and therefore prices will be supported."

About 86 per cent of world supply of palm oil, used in everything from chocolate to biodiesel, is grown in Indonesia and Malaysia.

Malaysia's imports fell 14 per cent to 60,000 tons in April while domestic consumption ranged between 190,000 tons and 240,000 tons, according to the survey.

BLOOMBERG