Malaysia Dec palm oil stockpiles seen falling 8.5%

KUALA LUMPUR (Jan 6): Malaysian palm oil stockpiles likely dropped to their lowest level in 27 months in December, with production and export demand for the tropical oil also falling, aReuterssurvey showed.

Inventories in the world's second-largest palm oil producer are forecast to fall 8.51% from November to 2.06 million tonnes in December, the lowest since September 2017, according to a median estimate of nine planters, traders and analysts polled byReuters.

Dry weather in the Southeast Asian country and lower usage of fertiliser by growers in response to the suppressed price of palm oil in early 2017 have lead to declining output and stockpiles.

"Moving forward, stocks will be a key issue for the first quarter of 2020 for both Malaysia and Indonesia," said Marcello Cultrera, institutional sales manager at Phillip Futures in Kuala Lumpur.

December production was forecast to fall 12.99% to 1.34 million tonnes from a month earlier.

The sharp decline is also possibly due to flooding at some estates and ageing estates, said Ivy Ng, regional head of plantations research at CIMB Investment Bank, said in a research note to clients.

Concerns that a supply shortfall will extend into the first half of this year, and optimism over higher biofuel mandates in top producers Indonesia and Malaysia have boosted palm oil prices to their highest in three years.

The benchmark palm oil contract last traded 0.42% lower to RM3,117 (US$759.68) on Friday.

Malaysian palm oil exports likely fell 5.88% to 1.32 million tonnes from the month before.

"Weaker exports could be due to the sharper rise in crude palm oil rise relative to other edible oils, which may have led some consumers to switch to other edible oils or reduce discretionary biodiesel blending," Ng said.

However, export demand is expected to increase as India, the world's largest edible oil buyer, slashed its import taxes on crude and refined palm oil from Southeast Asian countries.

Official palm oil data will be published by the Malaysian Palm Oil Board on Jan 10.

The median results from theReuterssurvey put Malaysia's consumption in December at 286,155 tonnes.

Breakdown of December estimates (in tonnes):