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Palm oil inventories in Malaysia advance to record on production

Palm oil inventories in Malaysia climbed to an all-time high in September as production of the world's most- used cooking oil stayed near a record.

[KUALA LUMPUR] Palm oil inventories in Malaysia climbed to an all-time high in September as production of the world's most- used cooking oil stayed near a record.

Stockpiles expanded 5.5 per cent to 2.63 million metric tons from 2.49 million tons in August, data from the Malaysian Palm Oil Board showed Monday. The median estimate in a Bloomberg survey last week was for reserves to jump to 2.70 million tons. Inventories at the end of September surpassed the previous record in December 2012 by 910 tons.

Rising stockpiles may scuttle a bull market rally in palm oil futures as record supplies of global vegetable oils and a collapse in crude oil weaken demand for the tropical oil used in everything from cooking oil to soaps and cosmetics. The commodity rallied last month as the strongest El Nino in nearly two decades threatens dry spells across Southeast Asia where most of the crop is grown. A weak ringgit also fueled palm's rally as it made the ringgit-priced feedstock more attractive for offshore customers.

Exports rose 4.4 per cent to 1.68 million tons in September, board data show, more than the 1.62 million tons forecast in the Bloomberg survey. Robust demand from Indian buyers and the weaker ringgit may underpin palm prices, said Hiro Chai, associate director at CIMB Futures Sdn. in Kuala Lumpur.

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"Exports are bigger than expected mainly because of the good Indian appetite and at the same time, Indonesia's September exports were also fantastic," Mr Chai said by phone on Monday. "We've seen quite a substantial correction and prices have reached an attractive level where people will buy on the series of good data."

Exports from Indonesia, the world's largest producer, increased 11 per cent to 2.34 million tons in September, the Indonesian Palm Oil Association said on Monday. India's palm oil imports probably rose for a ninth month, advancing 15 per cent to 800,000 tons in September from a year earlier, a Bloomberg survey showed.

Output in Malaysia totaled 1.96 million tons in September, just below estimates for 2 million tons and near the record 2.05 million tons a month ago, signaling palm trees may have entered a resting period after the peak output. Oil palm trees are at their peak production period between July and October before gradually entering a low-yielding season.

The benchmark contract on Bursa Malaysia Derivatives was at RM2,263 (US$547) a ton at 3:27 pm in Kuala Lumpur. Futures may have formed a floor at about 2,200 ringgit for the rest of the year and may rally if the Malaysian currency and production weakens, CIMB's Mr Chai said.

Malaysia and Indonesia, which together account for around 86 per cent of the world's palm oil supply, has agreed to form a council for producing countries, in efforts to cushion prices and work together to strengthen the industry. Last week Malaysia said it will minimize its imports of crude palm oil to manage high stockpiles in the country.