Malaysia's palm oil milling, stockpiles start inching back from multiyear lows

New Delhi — Malaysia's key palm oil numbers for March indicated a partial recovery in the industry, but the positive supply data is not expected to diminish a near-term bullish outlook for the markets amid growing concerns around low ending stocks, sources told S&P Global Platts.

The capacity utilization rate for palm oil millers increased to 75.21% in March from 58.57% in February. This was also higher than the 74.34% capacity utilization seen in March 2020, the first time in 2021 that monthly mill utilization rate was higher than last year, according to Malaysian Palm Oil Board data.

This is still a far cry from how busy Malaysia's palm oil mills were in 2019, when the mill utilization rate averaged at 86.52% between January and June.

Malaysia, the world's second-largest palm oil producer after Indonesia, has faced labor shortages and heavier-than-usual monsoons in the past few months, which have complicated logistics and production, according to industry watchers.

March-end stocks rise

Malaysia's end-March palm oil stocks, including crude palm oil and processed palm oil, rose 10.72% from February to 1.45 million mt, MPOB data showed. This is still lower than in 2020, when ending stocks for the month were at 1.73 million mt.

Malaysia's inventories are expected to stay under pressure for the rest of the year amid growing demand in India and China, analysts say.

On April 9, the US Department of Agriculture's Foreign Agricultural Service lowered the Malaysia 2020-21 ending stocks forecast to 1.41 million mt from its 1.51 million mt prediction in March.

Relatively, annual ending stocks are still very low, and market participants do not expect this to exceed 1.5 million mt for the first half of 2021, a level sharply below 2020 and 2019 levels.

Production and exports pick up

In March, crude palm oil production grew 28.4% from February to 1.42 million mt, while palm oil exports jumped 31.8% to 1.18 million mt, MPOB data showed.

On the production side, Peninsular Malaysia showed the largest year-on-year growth at 821,947 mt in March 2021, compared with 796,141 mt in March 2020.

Production levels in the Sabah and Sarawak regions were slightly lower than in 2020. Overall production between January and March 2021 was 3.65 million mt, down 5.28% year-on-year.

"While many are considering the absolute figures, it is important to consider that production is recovering from a very low base, the end stocks are now the lowest they have been in years," said a source who expects Indian demand recovery to mitigate adverse price moments caused by higher production.

Market participants are also confident that palm oil prices will be supported in the foreseeable future as any increase in production will be only over a low base.

Exports picture

Meanwhile, exports crossed the million-metric ton mark for the first time this year in March. Total exports between January and March were lower than the same period last year.

The first three months of 2021 also saw some of the biggest buyers of Malaysian palm oil, such as the Netherlands, Pakistan and China, paring their imports compared with last year. Imports to Kenya and Iran increased sharply in January-March over last year.

While the Malaysian government is looking to find new buyers for its palm oil, including Afghanistan and Saudi Arabia, so far imports by the two countries have been lower than in the last year, MPOB data showed.

According to cargo surveyors ITS and Amspec, Malaysian palm oil exports to global destinations for the first 10 days in April could be higher by 10.33%-11.33%, compared with the same period in March.

On April 13, the Asian palm market gained on borrowed strength from the soybean oil market, with the June palm oil contract on the Bursa Malaysia closing MR 74 higher on the day at MR 3,724/mt.