Malaysia's end-June palm oil stocks miss expectations as production lags

Malaysia's palm oil inventories rose at slower-than-expected rate at end-June from a month earlier, as production failed to match a double-digit growth in exports, official data showed on July 12.

Stockpiles at the world's second largest producer rose 2.82% to 1.613 million mt, according to data from industry regulator the Malaysian Palm Oil Board (MPOB).

A S&P Global Platts survey of 13 industry participants had seen ending stocks to rise to 1.637 million mt, up 4.4% from stocks at end-May.

Crude palm oil production last month rose to a 7-month high, growing 2.21% from May to 1.606 million mt, the MPOB data showed, the highest since November 2020. Production was still lower than the median estimate of the Platts survey which pegged June palm oil production at 1.649 million mt, up 5.2%.

"The MPOB June data shows production increasing at a lower rate vs estimates for 3%-6% growth with demand inline with market expectations at 1.42 million mt and nearly 12% higher. Much higher imports vs the 60,000-100,000 mt range estimates showing the market was tight vs the much improved increase in Indonesian production," Marcello Cultrera, institutional sales manager at Phillip Futures, said.

Malaysia -- the world's second largest palm oil producer after Indonesia -- has faced production lags due to declining yields and movement control restrictions to curb the spread of COVID-19 infections in the country even as it approaches the peak palm oil production season, traders and analysts told Platts. Malaysia's palm oil production is also facing a labor shortage of around 32,000 workers due to border controls which have prevented estate employees from Indonesia and Bangladesh from entering the country.

"Would term the MPOB numbers as 'mildly bullish'. All eyes will be on July production, we are yet to experience any surge in the arrival of FFB [Fresh Fruit Bunches], in fact the pace of arrival is slower versus the same period in June...Until and unless production improves, prices will remain defensive," said Paramalingam Supramaniam, head of brokerage firm Pelindung Bestari Sdn Bhd.

However, June palm oil exports, including crude and processed palm oil, surged 11.8% from May to 1.418 million mt, higher than the Platts estimate of 1.385 million mt in June.

Exports from largest buyer India are expected to rise further in July after New Delhi removed restrictions on the imports of refined palm oils and reduced import taxes on crude palm oil on June 28.