Palm oil production in Malaysia could remain relatively
weak, having fallen below market expectations for the first time in six months,
and fostered a drop in the country's hefty inventories.
Malaysian palm output fell 19.1% last month, compared with
January, according to the Malaysian Palm Oil Board, the sector regulator in the
world's second largest producing, and exporting, country of the vegetable.
While some decline had been expected, in what is a
seasonally weak period of the year, the drop far exceeded market expectations
for a fall of less than 14%.
And it stoked concerns that oil palm trees might have
suffered more severely from drought late in 2012 than had been evident in
production data which has trended well above market estimates for the past six
'Bullish for prices'
"We estimate precipitation deficiencies occurred throughout
the second half of 2012, with rainfall levels averaging 69% of normal, and lows
at 59% of normal in October," Rabobank analysts said.
"Subsequently, we expected yields to continue to move below
the seasonal trend in March before reaching a bottom in April of 0.269 tonnes
per hectare, 8% below normal."
Malaysia palm oil data, change on month and (on market expectations)
Production: 1.296m tonnes, -19.1%, (-104,000 tonnes)
Exports: 1.398m tonnes, -14.0%, (-102,000 tonnes)
Stocks: 2.444m tonnes, -5.2%, (+4,000 tonnes)
Sources: Malaysian Palm Oil Board, Bloomberg
Typically, palm oil output bottoms out in February.-14.0%
A continued fall in production, at a time when exports
usually pick up, could see Malaysia's palm stocks fall further from their
record high of more than 2.6m tonnes reached in December.
Rabobank estimated April inventories at 2.2m tonnes, a level
above the five year average but the lowest since August, and a figure that
would be "bullish for Kuala Lumpur palm oil prices relative to current futures".
Malaysian palm oil inventories fell 5.2% to 2.44m tonnes
last month, in line with market expectations, with the bigger-than-expected
fall in production matched by an unexpectedly-large drop in exports too, of
Exports to the important Chinese market fell 12% month on
month to 237,000 tonnes, reflecting a build in port inventories, in part
spurred by the introduction at the start of the year of tougher regulation on consumer
"High stock levels, as well as the expected March rapeseed
harvest, should cap a return to growth in Chinese imports until domestic stocks
can be drawn down," Rabobank said.
However, exports to India, the top ranked palm oil importer
rose 9%, and those to Europe by 40%.
"European imports should remain above usual levels in the
coming months due to relatively low palm oil prices when compared to European
vegetable oil prices," the bank said.
Hopes for shipments received a boost when Societe Generale
de Surveillance revealed that its cargo surveyors had estimated Malaysia's palm
exports rising 2.2% in the first 10 days of the month, compared with the same
period of January.
Rival Intertek Testing Services estimated exports flat.
Palm oil prices closed 0.1% higher at 2,449 ringgit a tonne,
well below their intraday day of 2,467 ringgit a tonne, but extending a winning
streak to three days.
Late on Friday, the US Department of Agriculture had
appeared to throw the market some bearish data, in lifted by 182,000 tonnes its
estimate for world palm stocks at the close of 2012-13, a rise of 9.8% year on