Palm oil futures recorded their lowest close in nearly eight
months after Malaysia's inventories were revealed to have grown faster than had
been thought, with slow exports so far this month boding ill for an erosion in
Palm oil futures for August closed down 1.6% at 2,385
ringgit a tonne in Kuala Lumpur, their 12th lower close in 13
sessions, and the weakest finish since mid-October.
The decline followed the release by the Malaysian Palm Oil
Board of data showing that Malaysia's palm oil inventories rose 4.2% last month
to hit 1.84m tonnes, higher than the 1.81m tonnes that investors had forecast.
The data actually showed production growing, at 6.5% month on
month, more slowly than investors had expected during a seasonally improving
period for output, with the production rise forecast at 7.1%.
And exports grew more strongly than forecast, at 10.7%,
above the 8.0% expected.
However, the raised inventories implied that Malaysia's
domestic consumption of the vegetable oil appears to have fallen some 9%, defying
expectations of an increase thanks largely to the country's raised targets for blending
biodiesel, based on vegetable oils, into forecourt fuel.
"For the first month this year, Malaysian domestic consumption
of palm oil has decreased month on month," said Edward Hugo, analyst at London
broker VSA Capital.
'Nothing to improve
As an extra setback to prices, data released separately from
cargo surveyor Intertek showed shipments declining 0.3% so far in June,
compared with the same period of May, extending ideas of a slowdown which set
in during the second half of last month.
"In recent weeks, palm oil pricing has been weak and this
data provides nothing to improve the immediate sentiment," Mr Hugo said, if
adding that firm oil prices, via the link through biofuels, "should provide
some support at these levels over the coming month".
Many investors are also looking at the prospect of an El Nino
weather pattern, linked to drier weather in palm oil's South East Asian
heartland, giving support for prices later in 2014.