Palm oil prices rebounded from early losses to hit one-month
highs after Malaysia unveiled lower-than-expected estimates for its stocks of
the vegetable oil, underlining doubts about the strength of an output revival.
Palm oil futures for July recovered from an early low of 2,605
ringgit a tonne to touch 2,675 ringgit a tonne at one point, a gain of 1.8% on the
The headway, which put the contract ahead of its 50-day
moving average for the first time in three months, followed the release by the Malaysian
Palm Oil Board of data showing that domestic stocks of the vegetable oil rose
by less than expected last month.
At 1.60m tonnes, they were up 3.0% month on month, but some
50,000 tonnes short of market forecasts.
"I suspect the market will be quite relieved short term by
this news," Ivy Ng, head of Malaysia research at Kuala Lumpur-based CIMB.
"Some people were quite aggressive on stocks estimates going
into this month."
The weakness in Malaysian stocks reflected a disappointing
production number, of 1.59m tonnes, some 45,000 tonnes below market
expectations, for a month when output is in the early stages of a seasonal
recovery towards highs around September.
Output - while 19.0% above last year's figure, which was
undermined by drought stemming from El Nino – remained 145,000 tonnes below the
result for April 2015, before the dryness struck.
However, the figure chimed with reports from palm oil
producers, said Ed Hugo at London-based VSA Capital, flagging comments, for
instance, from REA Holdings late in April, which he said showed "some early evidence
that the strong production increases in the January-to-March quarter will not
be sustained through the April-to-June quarter".
Mr Hugo also noted comments from Sipef, which last month,
flagging "smaller numbers" of palm fruit, said that "it is already obvious
that the strong production increases of the first quarter will not persist
during the second quarter".
He added: "It will be interesting to see which way it goes
for the last two months of the April-to-June quarter.
"Perhaps the market has run away with itself on all the
Ms Ng flagged the prospect of the Muslim festival of Ramadan,
which starts in two weeks' time, and will disrupt the availability of plantations
"The fasting month is coming up. A majority of workers will
be fasting - that will affect production," Ms Ng, with many of Malaysia's
largely Muslim, and foreign, plantations workforce taking holidays at that time
This issue comes on top of a structural threat to the
plantations workforce from a Malaysian clampdown on foreign labour.
"Most [groups] have a labour issue," Ms Ng told
Agrimoney.com, although adding that it was difficult to gain an understanding
of how severe this squeeze was industry-wide
"Of the companies you speak too, some are feeling no impact,
but some are feeling a labour shortage."
Malaysian palm oil data ahead would determine how significantly
the shortfall was biting, Ms Ng said, although adding that expectations
remained for a recovery in production and supplies in the second half of the
The extent of the revival will "determine how far palm oil
prices need to come down to attract more demand", in competition with other edible