Palm oil stocks in Malaysia have reached a nearly two-year high

Malaysia’s palm oil stocks are estimated to have increased for a fifth consecutive month in July, reaching their highest level in nearly two years. According to a Reuters survey of 11 traders, producers and analysts, inventories are estimated at 2.25 mln tons, up 10.8% from June.

The main driver behind the stock build-up was production growth outpacing exports. Crude palm oil (CPO) output in July is estimated at 1.83 mln tons, up 8% from the previous month and reaching its highest level in a year. Adjustments to domestic consumption estimates also contributed to higher inventories.

Meanwhile, Malaysia’s exports of palm oil products are projected to have increased by 3.2% in July to 1.3 mln tons, recovering from the previous month’s decline. However, stronger production growth meant that higher exports were insufficient to prevent inventories from rising further.

Analysts do not yet consider stocks above 2 mln tons a major concern for the market, as Indonesian palm oil export supplies remain constrained by the country’s mandatory B40 biodiesel program, which requires a 40% palm oil-based component. At the same time, Malaysian exports in July faced stronger price competition from Indonesia, where suppliers stepped up sales ahead of a higher export duty taking effect in August.

Additional pressure on palm oil comes from competition with cheaper soybean oil. Ample supplies of soybeans and their processed products from South America and the Black Sea region are forcing Malaysian suppliers to compete more aggressively for import demand, while a further build-up in palm oil stocks could increase downward pressure on prices.

Tags: Malaysia, palm oil, stocks