Malaysia’s palm oil stockpiles have slumped for a fourth consecutive while production has fallen 9.2% to an 11-month low as the US/China trade war and African swine fever dull demand.
The country, which is the second largest producer and exporter of the vegetable oil, saw inventories drop to their lowest since July 2018 to 2.423m tonnes in June, down 0.97% from 2.447m tonnes the previous month, according to figures from industry regulator the Malaysian Palm Oil Board (MPOB).
That was less than the 4% slippage predicted to 2.350m tonnes by a Reuters poll, although output and exports also fell slightly more than a consensus of observers had expected.
At London’s VSA Capital, Ed Hugo said: "Although Indonesia and Malaysia are starting to consume additional palm oil through their respective increased biodiesel programmes, the US/China trade war and the severe African swine fever outbreak in China is dulling demand for soybeans and impacting pricing across the edible oil complex."
Greater palm oil demand not materialised - yet
He continued: "We speculated previously that both events could have lent support to palm oil prices, with less soybean oil being produced as a ‘by-product’ of soybean meal production and therefore greater demand for palm oil but this has yet to occur.
"Potential soybean planting delays due to heavy rainfall in the US Midwest are providing some support currently and have widened the US soybean oil/Malaysian palm oil premium to around $145 per tonne, which may help cushion any CPO price declines as we move into the higher palm oil production months in South East Asia."
Research from the MPOB revealed output fell to 1.518m tonnes in June - as compared to a May figure of 1.671m tonnes and trader consensus of 1.538m tonnes.
Mr Hugo noted that the production figure was a "little lower than expected" with the lower availability of workers during the Eid celebrations in early June likely to have affected output.
Overall production for the first half of the season was up 10% as yields recovered from the a 2% year-on-year decrease seen in 2018.
While exports slid 19.4% to 1.383m tonnes, the figure it was broadly in line with the consensus expectation of 19% from 1.712m tonnes in May, and Mr Hugo said it was "significantly" above last year’s 1.1m tonne figure.
He noted said: "Exports for the rest of the year should be boosted by the recent government announcement to keep palm oil exports tax free until 31 December," adding, "following little year-on-year change in both 2017 and 2018, exports increased by more than 12%" in the first half of the year."
The gasoil premium over Malaysian palm oil narrowed in June to almost $50 per tonne but widened again towards the end of the month and into July to stand currently at about $100 per tonne.
Mr Hugo said: "With the Indonesian and Malaysian governments implementing increased biodiesel blending policies, this spread will be supportive to that effort (if sustained) and also increase non-mandatory biodiesel blending volumes."
The analyst noted Malaysian domestic consumption is about 39% up year-on-year.
Malaysian palm oil is trading at 1,926 ringgit per tonne (about US$465 per tonne), and now well below the symbolic 2,000 ringget per tonne level.