13/03/2012 (Agrimoney.com) - The rally in palm oil prices spurred by upbeat forecasts from a conference last week ran out of steam on Monday on data showing a surprise rebuild in Malaysia's inventories of the vegetable oil,  as exports flagged.

Palm oil prices - which on Friday touched a nine-month high of 3,368 ringgit a tonne in Kuala Lumpur, on talk of 2012 proving a record year for values – closed at 3,317 ringgit a tonne on Monday, down 1.0% on the day.

The decline followed data showing Malaysian palm oil stocks rising 40,700 tonnes last month to 2.06m tonnes, the highest February number on record, and putting them well ahead of market expectations.

Traders had forecast a drop of more than 70,000 tonnes in palm oil inventories last month in the world's second-ranked producer and exporter of the vegetable oil.

Exports tumble
The rebuild in inventories, after four months of decline, reflected in part higher output than investors had forecast in what is seasonally typically the weakest production month, before an upswell to a peak around October.

Malaysian production was, at 1.19m tonnes, some 15,000 tonnes above market expectations, and up 90,000 tonnes on February 2011, the Malaysian Palm Oil Board report showed.

Furthermore, exports fell further than had been forecast too, to 1.21m tonnes, a decline attributed in part to tougher competition from Indonesia, the biggest palm oil producer and exporter, which has increased its muscle on global markets through changes to taxes on shipments.

Separately, Chinese data on Monday showed that the country, the second-ranked palm oil buyer after India, imported 550,000 tonnes of vegetable oils last month, down 11.3% year on year.

March revival?
Palm oil prices were seen as being spared larger losses on Monday by data from cargo surveyors showing a strong start to March for Malaysian shipments.

Intertek Testing Services pegged the rise for the first 10 days of this month at 29.5%, compared with the same period of February, while rival Societe Generale de Surveillance put the increase at nearly 33%.

Shipments to the European Union were particularly firm, jumping five-fold, according to Societe Generale de Surveillance.

Indonesia vs Malaysia
The data may "be an indication" of demand returning to Malaysia from Indonesia, whose inventories may have been run down by the boost to its shipments from its tax reforms, Rabobank analysts said.

Indeed, while Indonesia data are less readily available, its exports of processed palm oil products jumped 30% in the October-to-December quarter, according to Oil World, the bank said.

Rabobank, while acknowledging that Monday's Malaysia Palm Oil Board data were "bearish", said that investors were likely to "partially dismiss" them, given the prospect of disappointing Malaysian shipments last month being match by strong Indonesian exports.