Palm oil inventories at 18-month high

Palm oil inventories in Malaysia probably rose for a second month to an 18-month high in August as production in the world’s second-largest grower outpaced overseas sales.

Stockpiles rose 12% to two million metric tonnes from July, according to the median estimate of nine planters, traders and analysts surveyed by Bloomberg.

That would be the highest level since February 2016, and a 37% increase from a year ago. Crude palm oil (CPO) production and exports were seen little changed at 1.83 million tonnes and 1.4 million tonnes respectively, the survey showed.

The Malaysian Palm Oil Board is set to release official data on Sept 11.

Palm oil futures rose for a second month in August, as market participants speculated on slower production growth and an uptick in demand for the commodity, used in everything from cooking oil to chocolate and detergents.

“In absolute terms, it’s bearish for inventories to hit two million tonnes,” said Paramalingam Supramaniam, director at Selangor-based broke- rage Pelindung Bestari Sdn Bhd. “However, the market is anticipating that both India and China will increase their pace of buying because of festivals. Production in September will be lower again because of holidays.”

Palm oil for November delivery was 1.3% higher at RM2,742 a tonne on Bursa Malaysia Derivatives Exchange by the midday break yesterday. Prices have dropped 12% this year.

Market participants are assessing a recovery in palm oil production in top growers Indonesia and Malaysia, as the lingering effects of El Nino wane.

Sime Darby Bhd, the world’s biggest planter by acreage, expects production to decline from the end of October through the first-quarter of next year.

Felda Global Ventures Holdings Bhd (FGVH), the world’s top CPO producer, cut its production target by 4% this year due to labour shortage and limited growth from its younger trees, it said on Aug 30.

Production estimates in the Bloomberg survey ranged from 1.72 million tonnes to 1.96 million tonnes, with five respondents forecasting output at the same level or lower than a month ago. Stockpiles were seen between 1.88 million tonnes and 2.18 million tonnes.

Festivals in China and India in October may stoke demand for CPO from the major buyers and provide a boost to prices, FGVH said. It sees prices trading between RM2,700 and RM2,900 in the second-half of this year. — Bloomberg