Palmoil HQ Malaysian palm oil stock levels seen at 23-month low

MALAYSIA’S May palm oil stocks may drop 2.3 per cent to a 23-month low as exports and domestic demand were slightly higher than output, but the pace of decline is slowing, a Reuters poll showed today.

Stock levels in the world’s No 2 producer of the tropical oil are seen at 1.26 million tonnes, the lowest since June 2007 and roughly 10 per cent below the 1.40 million tonnes seen as a minimum for Malaysia’s palm oil processing industry.

Production probably rose 8.0 per cent to 1.39 million tonnes, reflecting a recovery in yields that have been sapped by biological tree stress after record harvests last year and hot weather, a poll of five plantation houses showed.

Local demand, ranging between 200,000 to 220,000 tonnes, helped exports to outpace output slightly in absolute terms, poll contributors said. May exports are expected at 1.26 million tonnes, a 6.1 per cent gain as China took more palm oil cargoes.
“Local manufacturers and hypermarkets are stockpiling whatever palm-based cooking oil they can get for Ramadan because of the fear of tight supplies,” said one poll respondent, referring to the Muslim holy month of fasting in mid-August.

“Production will recover but there is uncertainty about when the peak output month is and there is a possible El Nino to worry about.”

The El Nino weather condition, which could bring droughts to top palm producing countries Indonesia and Malaysia and dent yields further, could develop within weeks, the US-based Climate Prediction Centre said last week.

And higher rainfall in rival soyoil-exporting South America due to El Nino could prompt farmers there to plant earlier and boost production, said brokerage Hwang-DBS in a recent note to clients.

“(But) the net effect of the situation would remain an oil deficit, as the soybean oil extraction rate is far lower than palm oil. Assuming demand is unaffected, this would have a positive impact on palm oil prices in 2010,” Hwang-DBS said.

Palm oil prices have surged 48 per cent so far in 2009, boosted by tight vegetable oil supplies and as global commodities prices gain more traction on signs of a global economic recovery. — Reuters