Malaysia’s palm oil output fell last month at its fastest in more than two years, but the impact on stocks was limited by a drop in exports too, and with ideas of soft demand seeing futures at one point hit an 18-month low.
Palm oil output in Malaysia, the second-ranked producer and exporter of the vegetable oil, shrank in February by 15.4% to 1.34m tonnes – the biggest month-on-month decline since January 2016.
The drop, while for a period that is seasonally weak for output, exceeded the expectations of traders, who had forecast a 1.40m-tonne figure.
However, the impact on the stocks figure, generally more important for pricing, was undermined by a weaker-than-expected export number too, seen at 1.31m tonnes, more than 20,000 tonnes below market forecasts.
Malaysian inventories came in at 2.48m tonnes last month, a drop of 2.8% from January, and indeed at their lowest in four months.
However, the figure exceeded market expectations by more than 100,000 tonnes – a disparity seen as down to weakness in Malaysia’s own palm oil demand.
“Domestic consumption was much weaker” than had been expected, said Ed Hugo at VSA Capital.
Another setback to futures, which dropped to a 19-month low of 2,350 ringgit a tonne immediately after the data, were separate statistics from cargo surveyor Intertek, showing Malaysian exports falling 12.1% month on month so far in March.
“I have perhaps become more bearish on near-term pricing prospects, given the slow start to exports this month, upcoming increased monthly production levels, the Indian import tax increases and the looming end of the three month Malaysian export tax holiday,” Mr Hugo said.
Malaysia in January revealed a three-month suspension of tariffs on palm oil exports.
Still, there is some talk of the prospect of an extension to the export tax holiday, and Mr Hugo flagged some “bullish factors to look out”.
These include “the read-across impact from increasing soybean prices as a result of the current Argentina drought situation”, although prices of soyoil, a key rival to palm oil, have in fact proven depressed for now, with worries centring on supplies of soymeal, the other main product of soybean crushing.
There are ideas of the clamour to supply soymeal in the US meaning something of a glut of the soyoil also produced.
Mr Hugo also flagged the potential price impact of “Chinese retaliation on US soybean exports for metal tariffs, likely resulting in greater demand for South American soybeans and South East Asian palm oil”.
Kuala Lumpur palm oil futures for May closed up 0.2% at 2,381 ringgit a tonne.