Malaysia's palm oil stocks to rise 12% by end-June on better production: survey

Malaysia's palm oil stocks are expected to rise 11.7% on the month to 1.7 million mt at the end of June, according to a survey by S&P Global Commodity Insights July 7.

Palm oil exports from the world's second-largest producer and exporter were at 1.21 million mt in June, down 11% from 1.36 million mt in May, according to the median estimate of 14 analysts and traders polled by S&P Global, as larger rival Indonesia resumed exports after a three-week ban.

The Malaysian Palm Oil Board, or MPOB, will release official supply and demand data for June on July 12.

The most active September crude palm oil futures contract on the Malaysian derivatives exchange settled 2.85% lower on July 6 after trading was paused during a volatile morning session when the contract fell 10% to hit its lower limit.

With recession concerns affecting global commodity markets and Indonesia speeding up export permits to reduce built up stockpiles, prices continued their decline on July 7, with the September contract down about 2% to MR 4,003/mt ($904.02) at 2:00 pm Malaysia time.

The benchmark crude palm oil contract, widely watched by international vegetable oil markets for pricing cues, has slipped about 40% from its record high in April.

June palm oil production from Malaysia is pegged at 1.59 million-1.60 million mt, the median estimate of the palm oil survey showed. This is 9.4% higher than production in May but lower than 1.61 million mt produced in June 2021.

Logistics troubles add pressure

Malaysian palm oil prices have been under pressure since June 10 after Indonesia issued clear export rules under the domestic market obligation, or DMO program, for its producers and exporters.

Overflowing tanks in Indonesia, with palm oil stocks rumored to be over 7.5 million mt by end-May according to trade sources, are pushing Indonesian sellers to issue massive discounts to buyers and clear built-up inventories in June.

Stocks are moving slowly from Indonesia even after this sharp price fall as palm oil shipments are moving slow due to low availability of vessels," Aditya Jeripotula, head of research at India-based commodities firm TransGraph Ltd told S&P Global.

Anticipated production growth in the coming months would deter any scope of stocks reducing any time soon, Jeripotula said. The freight cost to the largest vegetable oil buyer -- India -- has also nearly doubled in the last six months.

Since exports were restarted, Indonesia has raised its export quota to seven times the amount producers sell domestically compared to the previous limit of five times, according to a trade ministry notice on July 6.

Jakarta's DMO regulation links export licenses for palm oil firms to their contribution to the country's bulk cooking oil program which sells subsidized cooking oil in the domestic market.

* all figures in million mt