Malaysia’s August palm oil output, stocks beat expectations as exports fall 17%

Malaysia’s palm oil production and ending stocks beat market expectations in August due to a seasonal rise in production and a sharp decline in exports and domestic consumption, according to data released by the Malaysian Palm Oil Board, or MPOB, on Sept.10.

Reacting to the monthly data, industry analysts said that this buildup of stocks may push prices — currently trading close to record highs — down in the coming weeks.
Stocks at the second-largest palm oil producer increased 25.3% month on month to 1.874 million mt at the end of August, the data showed.

This was above the expectation of 1.741 million mt in end-August stocks according to a Platts survey of 13 industry participants.

Malaysia’s end-August stocks are now significant as the stocks of the largest palm oil producer, Indonesia, had also risen sharply in July. Indonesia and Malaysia’s July stocks combined are now above 6 million mt, Anil Kumar Bagani, head of research at Mumbai-based edible oil brokerage, Sunvin Group said.

The buildup of inventories in Malaysia and Indonesia — which account for 85% of the palm oil supply in the world — will push prices down in the near term, analysts said.

“Clearly bearish report with a huge buildup of stocks. August stocks [in Malaysia] are up 10% year on year. Prices may turn lower towards MR 4,000/mt ($966.07) and lower,” said Aditya Jeripotula, research head at commodity research firm TransGraph Consulting.

November palm oil futures on the benchmark Bursa Malaysia Derivatives index fell as low as MR 4,258 ($1,028.75) during afternoon trading Sept. 10, down 3.5% from the opening price of MR 4,415 ($1,066.7), after the release of the data.

“A break and close below MR 4,300 would be a trend changer for this market and if it happens, expect a sharp decline to MR 4,150-3,900 levels or below. Resistance is at MR 4,420-4,460,” Bagani added.

Palm oil prices are currently close to lifetime highs seen in May. The crude palm oil FOB Indonesia price touched $1,200/mt on Sept. 9, about 1% lower than its record high assessment of $1,222.50/mt on May 14, according to Platts data.

Production and exports

The jump in Malaysia’s end-August stocks came on the back of a steep decline in exports and domestic use in the past month.

Malaysian palm oil exports fell for the second consecutive month to 1.162 million mt, down 17.1% from July as high prices deterred buyers, with some turning to Indonesia, which had cut its export tax in August.

August palm oil output rose 11.8% on the month to 1.702 million mt, MPOB data showed.

While August production was higher than the 1.675 million mt expected by the Platts survey, it is lower than the 10-year average of 1.8 million mt as palm oil production typically peaks in the July-October season.

September outlook

While cargo surveyor data showed that Malaysian palm oil exports picked up sharply in the first week of September, analysts doubt that this pace will continue in the coming weeks.

For Sept. 1- 10, Malaysian palm oil exports rose 55%-65% to around 590,000 mt, according to advance estimates of cargo surveyors Intertek and Amspec shared by sources with Platts.

“Although the September H1 export is likely to be at a sharply higher range, H2 September export is unlikely to hold the upward momentum,” Bagani said.

On the production side, the arrival of oil palm fruits to factories for processing has “not been great till now,” Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari, told Platts.

“In fact, we would estimate September production to rise in single digits,” Supramaniam said.

“In September, production should increase 5%-8% with demand rising 15% and inventories could go up by as much as 9.6%,” Marcello Cultrera, institutional sales manager and derivatives dealer at Kuala Lumpur-based Phillip Futures told Platts.

Earlier this week, MPOB lowered its annual production outlook for palm oil to 18 million mt from its earlier expectation of beating its 2020 production of 19.1 million mt as a shortage of foreign labor has severely impaired harvesting and replanting activities at its palm estates.

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Tags: export, Malaysia, palm oil