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Palm reserves in Indonesia seen shrinking on exports

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Palm oil inventories in Indonesia probably declined in June after exports from the world's biggest producer rose and production stagnated.

[JAKARTA] Palm oil inventories in Indonesia probably declined in June after exports from the world's biggest producer rose and production stagnated.

Reserves fell 3.1 per cent to 1.9 million metric tons last month from 1.96 million tons in May, according to the median of seven estimates from analysts and planters compiled by Bloomberg. Inventories have been falling since at least January, according to data from the Indonesian Palm Oil Association, known as Gapki.

Falling stockpiles in Indonesia may help stem a decline in prices of the vegetable oil, used in everything from chocolate to cosmetics and biofuel. Futures in Kuala Lumpur entered a bear market this month as output recovered in Malaysia, the second- biggest grower, and ample supplies of soybean oil.

"The stockpiles figure is quite worrisome," Eddy Martono, director at planter PT Mega Karya Nusa, said by phone.

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"If production doesn't pick up in the coming months and demand is increasing, we may see inventories plunging further, maybe to 1.5 million tons in August."

Exports rose 2.3 per cent to 1.8 million tons in June, while output was seen at 2.5 million tons last month, compared with 2.49 million tons in May, the survey showed. Gapki will release June data later this month.

Delayed impact from a dry spell induced by El Nino is still curbing production, Mr Martono said. Output may significantly recovery in September, he said.

Futures on Bursa Malaysia Derivatives rose 1.1 per cent to 2,303 ringgit a ton on Tuesday. Prices, which are 7.3 per cent down this year, tumbled to 2,186 ringgit on July 12, the lowest since Sept 22.

Losses may be exacerbated as stockpiles expand with a seasonal increase in production, according to Godrej International Ltd's Dorab Mistry.

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