A sharp rise in exports and local consumption depleted Malaysia's end-September palm oil inventories by 6.9% to 1.746 million mt on the month, while a continuing shortage of foreign workers weighed on production.
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The country's September exports rose 36.8% month on month to 1.597 million mt, data released by the Malaysian Palm Oil Board (MPOB) showed Oct. 11, as top buyers India and China turned to Malaysian crude palm oil over more expensive options from Indonesia.
Meanwhile, Malaysia's crude palm oil (CPO) production dipped by 0.39% month on month to 1.703 million mt in September.
A S&P Global Platts survey forecast Malaysia's inventories at 1.828 million mt in September, exports at 1.588 million mt and production at 1.73 million mt. The country is the world's second-largest palm oil producer and exporter after Indonesia.
"Acute COVID-19 related labor issues are expected to negatively impact the Malaysian palm oil industry as the Government of Malaysia has not finalized a decision to allow foreign workers to work in the sector," a US attaché report on Malaysia's oilseeds sector released on Oct. 8 said.
Foreign workers, who account for about 70% of the 500,000 people employed in Malaysian oil palm estates, have been unable to return to plantations due to the coronavirus-led border restrictions over the past year.
Flooding in parts of Malaysia and logistical issues also slowed production in September, market sources said.
The MPOB and US Department of Agriculture, have repeatedly lowered their annual production estimate for Malaysian palm oil for the 2020-2021 year ended September, with the latest MPOB estimate at about 18 million mt, while that of the USDA's below 18 million mt. Both the industry bodies had an earlier production projection of over 19.6 million for the year.
Prices break record highs
Palm oil prices have risen to historic highs recently, with speculation of limited supplies rife among traders.
The front month palm oil futures were trading as high as MR5,135/mt ($1,231.5) Oct. 11, after crossing the MR5,000/mt ($1,199.1) mark Oct. 6. Front month contracts rose 10.6% between Oct. 4 and Oct. 8.
While the BMD CPO futures seem to fully price the MPOB data, the resumption of the Chinese palm oil market after the Golden Week holiday has been a major catalyst, Anilkumar Bagani, head of research at vegetable oil brokerage Sunvin Group said Oct. 11.
CPO futures for the benchmark December month first set a record of MR4,598/mt ($1,102.7) Sept. 30, as Chinese buyers rushed to buy palm oil, anticipating a slowdown in domestic soybean oil production due to power rationing in parts of the country.
December futures were trading as high as MR4,978/mt ($1,193.8) during morning trading in Malaysia Oct. 11.
Fresh records during the week saw the market adjust to the new pricing, RHB Futures wrote in a note, adding that while fundamental drivers were bullish, the rally does give "a sense of an overly extended scenario."