Malaysia’s end-March palm oil stocks seen edging up on rising production: survey

Malaysia's palm oil production is expected to have risen by 17% on the month to 1.34 million mt in March pushing month-end stocks higher, a S&P Global Commodity Insights survey showed April 7.

March-end inventories is pegged to rise 0.9% from February to 1.533 million mt for the world's second largest palm oil producer and exporter, according to the median estimate of 14 analysts, traders and producers surveyed by S&P Global.

The uptick in ending stocks was limited by a spurt in exports which are forecast to hit a three-month high in March.

Exports are expected to rise 9.3% from the month before to 1.2 million mt, the S&P Global survey showed, as demand for Malaysian palm oil surged due to policy interventions by larger rival Indonesia to limit exports and curb domestic vegetable oil shortages.

Meanwhile, low supplies from the world's largest soybean oil exporter Argentina, and stoppage of trade from Ukraine, the world's leading exporters of sunflower oil, also drove vegetable oil prices to record highs in March.

The Malaysian Palm Oil Board or MPOB will release official March supply and demand numbers on April 11.

Slow demand ahead

Palm oil prices cooled in the second part of March, as top importers India and China resorted to hand-to-mouth buying in the face of high prices and volatile markets, and this trend could seep into April as well, trade sources told S&P Global.

Demand is certainly a worry in April, as despite the dip in prices consumers are not rushing in to cover their requirements, said Paramalingam Supramaniam, director of Malaysia-based commodities firm Pelindung Bestari.

"The pickup in production will cap price rallies, especially in the second quarter of 2022."

The price of crude palm oil FOB Indonesia touched $1,930/mt on March 9 according to S&P Global data, an all-time high since assessment began in September 2019 -- as Indonesia increased it's domestic market obligation or DMO on palm oil producers to 30% from an earlier quota of 20%.

Since then, physical prices have cooled down to $1,652/mt by April 6, after Indonesia revoked the DMO rule in a surprise policy U-turn on March 17, and buyers stayed on the sidelines due to high prices.

"Going forward, bearish trends should take over, as production in Malaysia and Indonesia is starting to pick up quite fast now and since Ramadan demand is over, demand should normalize," Abdul Hameed, director of sales at Pakistan-based Manzoor Trading Co., said, while cautioning that geopolitical news could neutralize the bearish near-term fundamentals as global vegetable oil stocks are still tight.