Malaysian palm oil production fell last month to its lowest
since at least 2009, underlining drought damage worries - but futures in the
vegetable oil eased nonetheless, amid some disappointment on demand.
Palm oil output in Malaysia, the second-ranked producer of
the vegetable oil, after Indonesia, fell by 7.7% month on month in February to
1.04m tonnes, the Malaysian Palm Oil Board said.
That was below the figure of 1.07m tonnes that investors had
expected, and indeed was the weakest monthly production result on data going
back to the start of 2010, underling the weakening expectations for output in
Malaysia, and Indonesia, following drought blamed on El Nino.
Concerns were underlined at a conference on Wednesday at
which Dorab Mistry, the influential vegetable oils analyst, forecast world palm
oil output falling by 3m tonnes in 2015-16, on an October-to-September basis, including
a 1.5m-tonne drop to 18.4m tonnes in Malaysian volumes.
In Indonesia, the national palm oil association, Gapki, has
forecast a 400,000-tonne drop to 31.1m tonnes in domestic output of the
vegetable oil in 2016, which would represent the first year-on-year decline
Nonetheless, palm oil futures eased by 0.4% to stand at
2,568 ringgit a tonne in late deals in Kuala Lumpur, after the Malaysian Palm
Oil Board data showed Malaysian inventories falling by less than investors had
expected, despite the weak production figure.
Malaysia's palm oil inventories were, at 2.17m tonnes, down 6.1%
month on month, but ahead of market expectations of a figure of 2.10m tonnes.
"It looks like it is the higher-than-expected stocks figure
which has caused prices to pull back a little bit," said Edward Hugo at London
broker VSA Capital, told Agrimoney.com, adding that "stocks do still remain
about 25% ahead of last year".
The, relatively, buoyant February stocks figure represented
in part a drop in exports of 15.2% month on month, to 1.09m tonnes, a touch below
However, Thursday's data also implied a tumble in Malaysia's
own consumption of the vegetable oil.
"Exports year-to-date are now up 9% whereas domestic
consumption is down 30% - the opposite of what was expected at the start of the
year, with biodiesel mandates forecast to increase domestic demand and reduce
exports," Mr Hugo said.
In fact, separate data on Thursday from cargo surveyors
showed a further pick-up in Malaysian exports so far this month, with Intertek pegging
the increase at 31%, compared with the first 10 days of February, and Societe
Generale de Surveillance putting the rise at 57%.
Both companies put higher demand from the Indian
sub-continent as central to the increase, with SGS saying that volumes to the
region were, at 80,500 tonnes, near-double those in the first 10 days in
Mr Mistry on Wednesday, forecasting palm oil prices rising
to 3,000 ringgit a tonne or more, put demand in countries such as India, where
the vegetable oil is used largely for cooking, as central to this estimate.
"We have to take prices to levels where demand does not
expand and is made to shrink somewhat in price-sensitive markets like India,"