Record palm stocks sour Rabobank hopes for prices

Rabobank signalled a downgrade ahead in its forecasts for prices of palm oil, which it had rated as its most bullish agricultural commodity for 2013, after Malaysian stocks of the vegetable oil defied market expectations by rising to a fresh record high.

Palm oil inventories in Malaysia, the second-ranked producer and exporter of the oil, rose 2.4% to 2.63m tonnes last month, beating by 60,000 tonnes the previous record, set in November, the Malaysian Palm Oil Board said.

While exports fell by only 0.7% month on month, far less than the 4.1% drop expected, production outpaced forecasts too.

At 1.78m tonnes, it beat market estimates by more than 80,000 tonnes, and defied predictions of a rapid seasonal slowdown.

'Uncertainty around demand' 

Indeed, Malaysia's production had continued to beat expectations, a factor "likely to prolong the period that stock levels remain elevated", Rabobank said.

Malaysia palm oil data, November, change on month and (on forecast)

Production: 1.78m tonnes, -5.9%, (+80,740 tonnes)

Exports: 1.65m tonnes, -0.7%, (+57,050 tonnes)

Stocks: 2.63m tonnes, +2.4%, (+127,934 tonnes)

Source: Malaysian Palm Oil Board

Meanwhile, "uncertainty around future import demand, particularly to China, has acted to limit upside price moves".The bank forecast that palm oil prices - which closed down 1.0% at 2,385 ringgit a tonne in Kuala Lumpur on Thursday - will remain "rangebound in coming weeks until a seasonal slowdown in palm oil production is likely seen in March".

The forecast contrasts with an estimate in the bank's 2013 outlook, published in late November, and which placed palm oil as the top bullish bet in agricultural commodities, that values would average 2,800 ringgits a tonne in the first quarter of the year.

The bank was now "not so comfortable" with its price estimate for early 2013, Rabobank analyst Erin FitzPatrick told on Thursday, adding that group would next week issue fresh crop price forecasts.

Palm oil vs soyoil 

However, Ms FitzPatrick also cautioned against betting on price declines, saying that "downside appears to be limited" by the discount of palm oil's prices to those in rival vegetable oils.

Palm oil prices were $375 a tonne lower than those in soyoil on average last month, and $108 a tonne below those of Brent crude oil, against which vegetable oils are linked by their use in making biodiesel.

"Although the spreads have narrowed slightly in the first two weeks of January, they remain historically large," Rabobank said.

"In the medium-to-longer term we view this price discount as unsustainable, and expect a seasonal slowdown in palm oil production to emerge by the end of the first quarter of 2013 which should narrow the price discount to Chicago soyoil."

Chinese imports

Separately, China, the second-ranked palm oil importer, on Thursday revealed that its buy-ins of vegetable oils overall in December reached a record 1.1m tonnes.

However, the impact of the data, which did not give a breakdown by oil type, on boosting prices of palm oil was muted by its decreasing contribution to Chinese needs.

Palm oil accounted for 68% of Chinese vegetable oil imports in the July-to-November period, down from a long-term average of 75%.

"We believe the demand outlook is being clouded by Chinese legislation on the use of retail edible oil blends, and lower reported per-store sales by major food service companies in the second half of 2012," Rabobank said.

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