MALAYSIA June palm stocks at 10-month low, price to soar

Malaysia’s palm oil stocks tumbled to 10-month lows in June as exports surprisingly outpaced a weaker-than-expected recovery in production, data from an industry regulator showed yesterday.

Malaysian Palm Oil Board said June stocks in the world’s No 2 producer tumbled 7.1% to 1.45 million tonnes from a month ago, going against market estimates for a rise and setting the stage for a price rally.

“This is super bullish, phones are ringing as consumers are shocked by the numbers,” said a trader. “Buying will definitely come in... a kneejerk reaction.

The benchmark September contract on the Bursa Malaysia Derivatives Exchange rose 1% to RM2,324 by the midday break and ahead of the data release and also hit a one-week high at RM2,326.

Production rose 2.5% to 1.42 million tonnes in June, unexpectedly lower than market estimates for a 6%, as yields from key oil palm growing region of Sabah were still lagging.

“El Nino has passed but the trees are still taking some time to recover,” said a planter from Sabah state that accounts for about 25% of Malaysia’s total production.

El Nino-driven drier weather in early 2010 prolonged yield stress for oil palms after seasonally higher production in the last quarter of 2009.

But planters say higher temperatures then may have stunted female flowers that will produce oil palm fruits six months later in time for the seasonal output peak in October.

June exports rose 1.44 million tonnes from May as India and China, the world’s top palm oil buyers, started taking up more cargoes as prices declined slightly in June.

Traders expect the export momentum to continue in July as cargo surveyor Intertek Testing Services reported a 9.1% increase in Malaysian shipments for the first 10 days of this month. — Reuters


This article appeared in The Edge Financial Daily, July 13, 2010.