Malaysian palm oil stocks hit eight-month high

Palm oil output in Malaysia, one of the two big producers, fell faster than expected last month thanks to a double whammy of flooding and seasonal decline but an even quicker drop in exports dampened investor sentiment.

Palm oil production in Malaysia fell 5.6%, month on month, to 1.86m tonnes in November, a far bigger drop than expected by investors, who had forecast a figure of 1.95m tonnes.

While output typically starts a seasonal decline at this time of year, as monsoon rains hamper harvesting and lower oil extraction rates from palm fruit, the drop this time was exacerbated by excessive rainfall, which has continued into this month.

"Flooding is more frequently being reported as impacting production, so we would expect a further drop in December," Edward Hugo, agriculture analyst at London broker VSA Capital said.

Exports dip

However, the data showing Malaysia's exports dropping even quicker than production, by 8.7% to 1.52m tonnes, some 70,000 tonnes fewer than investors had expected.

And separate data from cargo surveyors showed the decline extending into this month, with Intertek pegging the decline in the first 10 days of December at 19.8%, compared with the same period of November.

Societe Generale de Surveillance put the drop at 26.1%, flagging particularly steep declines in shipments to Europe, down 55% to 59,803 tonnes and India, down 60% at 31,315 tonnes.

Palm oil exports to many northern hemisphere countries falls at this time of year, with palm oil's relatively high solidification temperature making it unsuitable for use in making biodiesel for use in the winter.

Furthermore, "the eradication of the previously large palm oil/soyoil discount will also likely subdue demand", Mr Hugo noted.

'Subdued demand'

The data, coupled with a lower-than-expected import forecast, meant that Malaysian stocks grew to an eight-month high of 1.98m tonnes at the end of last month, albeit a figure in line with market expectations.

Nonetheless, stocks are more than 20% lower than a year, limiting the dent to palm oil futures, which closed down 0.2% at 2,639 ringgit a tonne in Kuala Lumpur nonetheless, for the benchmark February contract.

Mr Hugo said that with export demand "subdued", Malaysia's palm oil stocks" are likely to stay around these levels in December before falling in the first few months of next year as we enter the much lower production months".

Domestic drive

However, he also highlighted the growing influence of domestic Malaysian consumption, which the government is attempting to increase through measures such as increasing next the year the amount of palm-based biofuel to be blended into diesel.

"Domestic demand is now running at +13.4% year on year to date, suggesting that efforts to increase in-country demand are having an effect,"Mr Hugo told

"The incoming increase to the Malaysian blending mandate will increase domestic consumption further."

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