Palm oil futures touched a 10-month low despite data showing
smaller-than-expected Malaysian stocks of the vegetable oil, as investors raised
doubts over exports proving strong enough to maintain a squeeze on supplies.
Palm oil inventories in Malaysia, the second biggest
producer and exporter of the vegetable oil after Indonesia, came in at 1.56m
tonnes last month - a drop of some 42,000 tonnes month on month, and the
weakest May figure in eight years.
The figure, from the Malaysian Palm Oil Board, was also more
than 20,000 tonnes below the level that investors had expected, reflecting an
unexpected jump to 1.51m tonnes in exports.
On a year-on-year basis, exports surged 17.4%, the biggest
such increase in four years.
Nonetheless, palm oil futures eased in Kuala Lumpur,
touching 2,425 ringgit a tonne at one point, the weakest for a benchmark
contract since August last year, before closing at 2,432 ringgit a tonne, down 1.0% on the day.
Prices have come under pressure in part from strength in the
ringgit which, in making Malaysian exports less competitive, puts downward
pressure on local values.
However, Ivy Ng, head of Malaysian research at Kuala Lumpur-based
broker CIMB, also flagged concerns that "exports are not going to be that
strong" ahead, given the boost to demand from stockpiling ahead of the Ramadan
festival, which began in late May.
Malaysian May exports last month had proved particularly strong
last month to Pakistan, as well as India, Ms Ng said.
"I think we need to see how strong demand is in consuming
countries before knowing if they will restock," and boost demand for supplies
from the likes of Malaysian, she told Agrimoney.com.
Furthermore, there remain expectations that Malaysian palm
oil production will "recover strongly in the second half of the year", Ms Ng
said, even though noting that output appears to be continuing to suffer some dryness
hangover from the El Nino more than a year ago.
Although Malaysia's production hit 1.65m tonnes last month -
up more than 100,000 tonnes month on month, and some 20,000 tonnes ahead of
market expectations – the figure remained below the 1.81m tonnes seen in 2015,
before El Nino struck.
"Production has not fully recovered from the El Nino effect."
However, "everyone is pushing their forecast for a recovery
in production expectations into the second half of the year", with ideas that "weather
has been quite good" of late.
Life in palm oil
Still, at London broker VSA Capital, Ed Hugo flagged hope
for palm oil bulls from the export data, saying that the May rise in shipments
suggested that "perhaps we are finally beginning to see life in the palm oil
export market again".
Mr Hugo noted that the "US soyoil premium over Malaysian
palm oil has also increased in recent days, to about $130 a tonne, which should
help boost near-term export demand at as well".
The two vegetable oils are interchangeable in some uses,
including in making biodiesel – a market that may imminently come under the
spotlight again, with investor talk that US officials are poised to release
data on the domestic biodiesel mandate for 2018.
Furthermore, the US soyoil market is in focus over ideas
that the US is poised to introduce steep tariffs on imports of biodiesel from
Argentina and Indonesia, amid an anti-dumping probe.