Palm oil futures overcame early weakness after official data showed smaller Malaysian inventories of the vegetable oil than investors had expected, as exports proved less weak than had been expected.
Palm oil futures for November, having fallen earlier to 2,791 ringgit a tonne, recovered to 2,823 ringgit a tonne in late deals in Kuala Lumpur, a 0.3% gain on the day.
The recovery followed Malaysian Palm Oil Board data showing that Malaysian stocks of the vegetable oil rose by 1,000 tonnes last month – short of the 92,000-tonne increase that investors had expected, according to a Reuters poll.
At 1.70m tonnes, stocks were the weakest since 2016 for August, a time of year when, with Malaysian output running up to its seasonal peak, inventories are typically being rebuilt.
Production vs exports
In fact, Malaysia’s palm oil production last month, up 3.1% from July at 1.86m tonnes, was a little ahead of market expectations, and the highest August figure in five years.
However, imports came in shy of expectations, while Malaysia’s palm oil exports last month, at 1.58m tonnes, beat expectations of a 1.53m-tonne figure.
Many investors feared that Malaysian exports would fall back harder from high of 1.78m tonnes reached in July when importing countries such as China and India accelerated purchases in a drive to rebuild inventories drained during a Covid-19 lockdown trade malaise.
Malaysia vs Indonesia
Investors received further encouraging data on Malaysian exports on Thursday when AmSpec Agri reported Malaysian palm exports for the first 10 days of this month, at 472,780 tonnes, up 10.0% from the same period of July.
Malaysia, the world’s second biggest palm oil exporter, appeared to be benefiting from disappointing output in top-ranked Indonesia, Ivy Ng regional head of agribusiness research at CIMB Investment Bank.
Available data for the April-to-June quarter on Indonesian production “did not live up to expectations”, Ms Ng told Agrimoney, with industry reports for July and August suggesting that “production has not picked up much.
“Malaysia has benefited from the fact that Indonesia’s production is not that strong,” with Indonesia’s exportable supplies further sapped by the country’s drive to boost domestic biodiesel production.
The dynamics had left Malaysia with palm oil stocks which were “still pretty tight” for a time of year when Malaysia is approaching its seasonal production peak, Ms Ng said.
There are “differing views” on output ahead, with availability of labour a particular uncertainty, given that Malaysia’s plantations have historically relied on foreign labour for 80-90% of their workforce.
With many workers having returned home during the peak of the Covid-19 pandemic, and being prevented from re-entry by Malaysian coronavirus restrictions, producers face a shortage of reportedly 37,000 workers, equivalent to nearly 10% of their workforce.
“Malaysia’s government says it is protecting jobs for Malaysian workers,” Ms Ng said.
“But not enough Malaysians want to do the jobs.”
There are reports of plantations looking to prisons and recovering drug addicts in their quest for labour.
’Has visited prisons’
Malaysia-based Sime Darby Plantation (SDP) - the world’s biggest palm oil group by area, which relies on Indonesians for 60% of its labour - told a webinar on Wednesday that it faces a shortage of 10% of its workers, equivalent to 2,500 people, broker AmInvestment Bank said.
“To alleviate the shortage, SDP has extended the contracts of most of its existing estate workers,” the broker said.
It has also recruited 300 Malaysians. “None of them are from the prisons although SDP has visited prisons and drug rehabilitation centres in its recruitment drive.”