KUALA LUMPUR: Malaysia’s palm oil inventory fell 1.93% in June from a month earlier, official data Monday showed, as a Muslim festival- shortened-work days dragged output lower amid robust demand through Ramadan. Palm oil stockpile totalled 1.53 million tons as at June-end compared with 1.56 million tons a month earlier, the Malaysian Palm Oil Board said in a statement. Production fell 8.48% month-on-month to 1.51 million tons, while exports were down 8.39% on month in June to 1.38 million tons, the board said. Analysts said the decline in production is likely temporary as Malaysian palm oil producers rely heavily on Indonesian workers for harvesting. Output from Indonesia and Malaysia, both Muslim-majority nations, collectively account for more than 80% of global palm oil output. “We have seen production declined particularly in the last 10 days of June. That means the decline in production is temporarily and not structural,” said MIDF Amanah Investment Bank’s analyst Alan Lim. “We expect production to improve in July and inventory to rise.”
Palm oil prices rose to their highest since May 25 following the data’s release. The most-traded crude palm oil futures contract on Bursa Malaysia Derivatives for September delivery climbed 1.5% to 2,592.00 ringgit a ton on Monday. Palm oil futures’ have declined 16.8% so far this year amid expectations of strong increase in supply later this year of the edible oil used in everything from snacks-to-soaps. Output is expected to recover thanks to improving weather conditions since the 2015 El Nino conditions had shrivelled output. Palm oil production will likely pick up between September and November based on past trends, said Kenanga Investment Bank’s analyst Voon Yee Ping, who predicts prices to average 2,550 ringgit per ton for the entire 2017. “Historically, production is lower around June and then picks up between September and November,” she said. “We still think production will rise significantly; we will see production to recover to 2015 level albeit slightly lower.” Exports, however, could stay weak as strong yields of substitute oils such as soybean and corn weigh on demand for palm oil. “I think July exports will still be weak and top-line will be flattish,” said RHB Research Institute’s analyst Hoe Lee Leng, who expects palm oil inventory level to rise again after June.
