Palm oil reserves seen climbing

Palm oil stockpiles in Malaysia probably jumped to the highest level in eight months as exports from the world's second-biggest producer declined for the first time since May, a Bloomberg survey showed.

Inventories expanded 6.2 per cent to 1.96 million metric tonnes in November from a month earlier, according to the median of six estimates from a plantation company, analysts and traders. That's the highest since March and 24 per cent less than a year earlier, according to data from the Malaysian Palm Oil Board, which may release official data on December 10. Exports dropped 5.4 per cent to 1.57 million tonnes, while output fell 2.6 per cent to 1.92 million tonnes, the survey showed.

Palm oil rallied into a bull market last month and is heading for the first annual advance in three years on speculation that output from top producer Indonesia may drop for the first time since 1998. Lower supplies and Indonesia's push for higher biodiesel usage will keep prices between RM2,600 to RM2,900 a tonne until March, according to Dorab Mistry, director at Godrej International Ltd.

"Prices will be supported at these levels because although inventories are higher, this should be the peak," said Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd. "The increase in stockpiles was because of the drop in exports due to a lack of major festivals in the near term and also the colder weather in the Northern Hemisphere."

Reserves will decline in December as production drops seasonally, Lim said. Output of the oil used in everything from candy to biofuels is typically highest from June to October and tapers off from November due to growing cycles.

Futures climbed 8.9 per cent this year to RM2,656 yesterday on the Bursa Malaysia Derivatives after slumping a combined 36 per cent in the past two years. Prices rallied to RM2,692 on November 22, the highest since September 2012.

Indonesian output will decline by 500,000 tonnes to 27.5 million tons this year, before rebounding to 30.5 million tonnes in 2014, Mistry told a conference in Bandung, Indonesia, on November 29. The retreat this year would be the first drop since 1998, according to data from the US Department of Agriculture. Production in Malaysia will climb to 19.4 million tonnes this year from 18.8 million in 2012, said Ivy Ng, an analyst at CIMB Investment Bank Bhd.

"Stockpiles are still much lower than a year ago and it's still below the 2 million-tonne mark," Ng said. "We are at the end of the high production season, so people won't be too worried about the higher stock situation."

Stockpiles in Malaysia have stayed below 2 million tonnes since April after reaching a record of 2.63 million tonnes in December last year. Imports were at 20,000 tonnes last month, unchanged from October, according to the median of five estimates. Output totaled 17.6 million tonnes in the first 11 months, according to official data for the first 10 months and the median estimate for November. That compared with 17 million tonnes a year earlier, board data showed.

Exports may have fallen due to the narrowing discount to soybean oil as consumers switch to the substitute, Ng said. The spread was at US$71.06 a tonne on December 3, compared with the average US$258 this year, data compiled by Bloomberg shows.