Palm oil futures fell back after Malaysia revealed an
unexpectedly strong finish to 2016 for its palm oil production, while the country's
plantations minister too flagged the potential for easing values.
Kuala Lumpur palm oil futures for March, the best-traded contract,
lost early gains to stand 0.6% lower at 3,094 ringgit a tonne in afternoon
The reversal followed the release by Malaysian Palm Oil Board
of data showing that inventories of palm oil in the country, the second-ranked producer
and exporter of the vegetable oil, had nudged some 2,600 tonnes higher in December,
to 1.665m tonnes.
While still down 37% year on year, the figure was nearly 60,000
tonnes bigger than analysts had expected.
Higher stocks of a commodity, in signalling less need for
buyers to compete for supplies, tend to undermine prices.
Furthermore, Malaysia's plantation industries and
commodities minister, Datuk Seri Mah Siew Keong, sounded a somewhat bearish
note when he said he was "hopeful palm oil prices would average at 2,700 ringgit
per tonne" in 2017.
Although that would beat the 2016 average that he quoted at
2,600 ringgit per tonne, it is a figure below that futures investors are
pricing in, with near-term futures contracts trading above 3,000 ringgit a
tonne, and even late-year ones comfortably above 2,800 ringgit per tonne.
Malaysian palm oil data, December, change on month, and (difference from market forecast)
Production: 1.474m tonnes, -101,200 tonnes, (+24,800 tonnes)
Exports: 1.268m tonnes, -102,500 tonnes, (-51,000 tonnes)
Stocks: 1.665m tonnes, +2,600 tonnes, (+58,600 tonnes)
Sources: MPOB, Reuters
Mr Mah flagged that Malaysia was "seeing increasing exports
to China, having dropped drastically over the last few years".
However, he added that "this year, we'll have to work harder
to market palm oil", which is a key employer and earner of foreign currency for
'Better time of it'
Malaysia's unexpected rise in palm oil inventories last
month reflected in part resilient production which, while down 6.4% month on
month in what is a seasonally weak period for output, actually exceeded the
"Interestingly, this also represented the only year-on-year
increase in crude palm oil production across the whole of 2016," said Edward
Hugo, analyst at London broker VSA Capital.
The figure "certainly demonstrates that producers had a
better time of it in the last couple of months of the year as the impact of El
Niño continues to slowly diminish," with the hangover of dryness blamed on the weather
seen as depressing output markedly for most of last year.
Malaysia's overall palm oil output last year, at 17.32m
tonnes, was down 2.64m tonnes from 2015, and the lowest in six years.
'More bullish tone'
Meanwhile, in a further boost to Malaysia's stocks, the
country's exports, in dropping more than 100,000 tonnes month on month to 1.27m
tonnes, were weaker than had been expected.
However, market sentiment was supported somewhat by separate
data, from cargo surveyors, showing a strong start to 2017 for Malaysian shipments,
with ITS putting volumes up 8.1% at 351,907 tonnes so far this year.
Rival SGS pegged the increase at 10.7%, to 338,777 tonnes.
"If sustained, this rise in exports suggests a more bullish
tone to the market in the near-term," Mr Hugo said, if adding that was "extremely
rare" for Malaysia's January palm oil exports to exceed those of the preceding month.
Mr Hugo also flagged, as some support to prices, the wetness
which is plaguing parts of South East Asia, including Malaysia.
"If sustained, the current heavy rains may impact production
figures for the coming couple of months, due to harvesting, logistics and
processing issues," he said.