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Malaysian palm oil stocks hit two-year high, as export growth falls short

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Malaysia’s palm oil inventories put in a stronger late spurt to 2017 than had been expected, hitting their highest in more than two years, as exports failed to rise as fast as investors had forecast.

 

However, hopes for an early 2018 upturn in shipments helped palm oil futures overcome an initial dip on the data to stand up 0.4% at 2,607 ringgit a tonne in late deals in Kuala Lumpur.

 

Palm oil stocks in Malaysia, the second-ranked producer and exporter of the vegetable oil, ended December at 2.73m tonnes, up 7.0% month on month, the Malaysian Palm Oil Board reported.

 

The stocks number, rising for a sixth successive month, was the highest since November 2015, and indeed the third highest overall on data going back a decade.

 

The figure was also more than 45,000 tonnes ahead of market expectations.

 

Exports disappoint

 

The extent of the stocks increase reflected in part a slightly softer slowdown in Malaysian palm oil output than had been expected in what is a seasonally weaker time for production.

December production, at 1.83m tonnes, was down 5.6% on the November figure, but some 20,000 tonnes ahead of forecasts.

 

However, the main contributor to the bigger-than-expected stocks growth was a smaller-than-forecast rise in exports, to 1.42m tonnes – remaining some 36,000 tonnes behind market expectations.

 

“Export growth of 5% month on month came in more conservative than the 9% rise month on month forecast by the market,” Alan Lim, at Malaysia-based broker MIDF, told Agrimoney.

 

The shortfall reflected strength in the ringgit, which appreciated by more than 4% against the dollar during the last two months of 2017, making Malaysian exports that much less competitive.

 

‘Worried about export demand’

 

At VSA Capital, Ed Hugo, said that “in general, I have been worried about export demand for some time with China preferring soybean for the double product feature”, being crushed into soymeal as well as soyoil, “and Europe becoming more and more anti-palm oil”.

 

In terms of major consumption hubs, “that just leaves India, which recently increased import tariffs, and Indonesia, for which biodiesel has to be a big part of the story from now on”, Mr Hugo said.

 

However, he underlined expectations that Malaysian exports should “pick up in the next few months as Malaysia has removed the export tax on palm oil until March and we will likely see stocking up ahead of Chinese new year in mid-February”.

 

While data from cargo surveyor ITS showed exports down 1.4% month on month for the first 10 days of January, Mr Lim was also upbeat on Malaysian export prospects for now, saying that volumes “for January should be better, because Malaysia has removed its export tax”.

 

La Nina factor?

 

These hopes for exports had been reflected in Wednesday’s recovery in futures prices, Mr Lim said.

 

And Mr Hugo also flagged cause for optimism over values, saying that he had become “slightly less bearish” in his short-term outlook thanks to factors including the seasonal low in output early in the calendar year, besides the prospect of stocking by Chinese buyers ahead of new year celebrations last month.

 

There is also the “potential for exaggerated flooding disruption from La Niña”, which tends to bring heavy rains to South East Asia, while also having the potential to “dry out key US soybean regions and boost edible oil pricing”.

 

Furthermore, noting that palm oil’s premium to gasoil has fallen to about $50 a tonne, Mr Hugo underlining the potential for greater consumption of the vegetable oil by biodiesel plants.

 

Full year comparisons

 

The December data took Malaysian palm oil production last year overall to 19.9m tonnes, recovering nearly all ground lost last year, when dryness blamed on El Nino reduced output to 17.3m tonnes.

 

However, 2017 exports, while up 3.1% year on year at 16.6m tonne, remain well below the 17.4m tonnes reported for 2015, before the production downturn set in.

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