Palm oil officials confirmed rumours that Malaysian production
of the vegetable oil showed unusually strong growth last month, enabling an unexpected
rebuild in inventories.
The Malaysian Palm Oil Board said that the country's palm
oil output hit 1.50m tonnes in March, a figure far above the 1.39m tonnes that
investors had expected, according to a Reuters survey.
Although output from Malaysia, the second-ranked producing country
after Indonesia, typically shows a seasonal recovery at this time of year, the
March revival was particularly strong, showing a gain of 17.3% from February,
and of 13.0% year on year.
However, the recovery tallied with talk earlier in the week
that Malaysian Palm Oil Association producers' group had estimated growth in
Malaysian output last month at 17.8%.
As an extra boost to hopes for palm oil supplies, the Malaysian
Palm Oil Board estimated the country's exports of the vegetable oil at 1.24m
tonnes, down 8.0% month on month, and a bigger decline than investors had
Combined, the extra production and weak imports helped lift
stocks to 1.69m tonnes, a rise of 1.9% month on month - contrasting with the 4.8%
fall traders had forecast.
However, futures markets reacted calmly to Thursday's
figure, with Kuala Lumpur's benchmark June contact down 0.3% at 2,605 ringgit a
tonne in late deals.
That was in part a reflection of the 1.5% decline in prices,
to a two-month low, that palm oil futures had already suffered on Monday, when
the rumours of the Malaysian Palm Oil Association estimate emerged.
Furthermore, cargo surveyor Intertek eased concerns over Malaysian
palm oil exports by reporting a 4% rise in shipments so far this month.
And at broker VSA Capital, analyst Edward Hugo said that
while Thursday's MPOB data "may cause some short-term weakness in palm oil pricing,
stocks are still some 22% lower year on year".
He also flagged concerns over weather in South East Asia,
which produces the great majority of the world's palm oil, amid "increasing
speculation that an El Nino will form later this year".
The Australian Bureau of Meteorology on Tuesday raised above
70% the prospect of an El Nino weather pattern, which typically causes damaging
dryness in South East Asia, kicking off during the southern hemisphere winter.
However, the recovery in Malaysian palm oil output appears
another reminder that the pattern has not kicked in yet, despite an early-2014 dry
spell in the country.
In eastern Australia too, another region usually rendered
dry by El Ninos, rains have refreshed parched soils, just in time for winter
"Excellent rainfall continues to fall across south eastern
Australia, providing favourable planting prospects for winter grain and
oilseeds," Luke Mathews at Commonwealth Bank of Australia said.
"That said, the industry remains somewhat wary given the Bureau
of Meteorology recently upgraded their El Nino likelihood."