Malaysia's end-January palm oil stocks fall 4% on month on weak production

Stronger-than-expected exports, along with a dip in production, pushed Malaysia's palm oil stocks lower by end January, the country's official industry body Malaysian Palm Oil Board, or MPOB, said Feb. 10.

Palm oil ending stocks at the commodity's second-largest producer and exporter fell to 1.55 million mt at the end of January, down 3.9% from the end-December stock level of 1.62 million mt and marginally below the 1.58 million mt expected in an S&P Global Platts poll.

Production was recorded at 1.25 million mt in January, MPOB said, below the Platts survey estimate of 1.28 million mt.

January exports were higher than projected by provisional data from cargo surveyors at 1.16 million mt, while the Platts survey of 10 trade sources had forecast exports of around 1.08 million mt.

The higher exports and lower import figures given by the MPOB could be reflecting the impact of Indonesia's policy change in the last five to 10 days of January, Aditya Jeripotula, head of research at TransGraph Consulting told Platts.

The larger palm oil producer Indonesia announced that exporters must reserve 20% of their shipments for domestic supply on Jan. 27 to get export permits, a move that temporarily stopped shipments leaving Indonesian ports as well as pushed palm oil futures prices up sharply in the days that followed.

In February, we expect production to rise by around 3% on the month while exports could see a 7%-8% pickup, Marcello Cultrera, sales manager and derivative dealer at Phillip Futures in Kuala Lumpur said.

(all figures in million mt)

Market volatility 'relentless'

The domestic obligations placed by Indonesia on its producers as well as lower production in Malaysia due to heavy rains in January added to the already bullish palm oil futures on Malaysia's commodity exchange since the start of the year.

"The [MPOB] report is slightly bullish, as the market has been relentlessly trading higher amid the Indonesia DMO policy... the policy would surely restrict Indonesian palm oil exports, giving Malaysian palm oil an advantage," Anilkumar Bagani, research head at Sunvin Group said.

April futures on the Bursa Malaysia Derivatives, which influence international palm oil prices, have risen by about 13% since Jan. 15 when it became the most active third month futures contract. The contract briefly touched an all-time high of MR 5,749/mt ($1373.78) on Feb. 7 before correcting over the next two days.

However, the April contract swung back up from a mid-day slump Feb. 9 to close 147 points higher at MR5,596/mt after Indonesia expanded its export licensing requirements to include all palm products from its earlier ruling, which required exporters to only declare their shipments of crude palm oil, olein and used cooking oil.

We expect the market momentum to remain bullish in the short-to-medium term due to tight stocks in Malaysia, Indonesia's policy issues and soft oil supply concerns in the background, Jeripotula of TransGraph Consulting said.