Palm oil soars almost 7% on Malaysia’s surprise drop

by BLOOMBERG / pic by MUHD AMIN NAHARUL

SINGAPORE • Palm oil jumped the most since early 2020 after a report showed stockpiles in second-biggest grower Malaysia contracted for the first time in five months, confounding predictions for an increase.

Reserves declined 7.3% to 1.5 million tonnes in July, the smallest since March, according to Malaysian Palm Oil Board (MPOB).

That compares with estimates in a Bloomberg survey for an increase to 1.62 million tonnes. Exports dipped 0.8% on month to 1.41 million tonnes, but beat expectations for 1.35 million tonnes.

Production was roughly in line with estimates at 1.52 million tonnes, but still declined 5.2% on month to the lowest level since March.

MPOB came out with “strong bullish data, confirming market sentiment of tight supply”, said Sathia Varqa, owner of Palm Oil Analytics in Singapore.

Shipments declined less than expected as higher exports to the European Union offset a drop to China and India, he said.

The report is bullish as production in Malaysia seems to continue to be in “trouble” in 2021, said Anilkumar Bagani, research head of Mumbai-based Sunvin Group.

Futures may challenge a recent high of RM4,498, he said. Futures in Kuala Lumpur jumped as much as 6.9% to RM4,490 a tonne after the report, the biggest intraday increase since January 2020.

Rival soybean oil in Chicago extended gains, after jumping with petroleum prices a day earlier. More fossil fuel refiners in the US are switching to renewable diesel, which relies on ingredients like vegetable oils and discarded animal fats.

Underscoring the outlook for tight supply, Malaysia’s crude palm oil production could drop to 18 million tonnes this year from 19.14 million tonnes in 2020 due to a shortage of foreign workers, according to a report in The Star newspaper citing Malaysian Palm Oil Association CEO Nageeb Wahab.

Shipments from Malaysia shrank 13% in the first 10 days of August from a month earlier, reversing a gain in the first five days, according to Intertek Testing Services.

AmSpec Agri estimates that exports fell 10% in the first 10 days. Market expectations had been for exports to slump about 20%, Varqa said.