06/06/2012 (Bloomberg) - Palm-oil inventories in Malaysia, the second-biggest supplier, probably dropped to the lowest level in more than a year in May, potentially curbing a 19 percent slump in prices of the commodity used in candy bars and biofuels.

Stockpiles fell 3.8 percent to 1.78 million metric tons, the lowest since April 2011, from 1.85 million tons a month earlier, according to the median in a Bloomberg survey of three plantation companies and two analysts. While production increased 6.3 percent to 1.35 million tons from 1.27 million tons, it was 22 percent below last year’s 1.74 million tons. Exports rose 4.5 percent to 1.39 million tons. The Malaysian Palm Oil Board will release the data on June 11.

The price has plunged 18 percent from a 13-month high in April as growth slowed in China, the biggest cooking-oils user, and the debt crisis worsened in Europe. Exports from the top producer Indonesia climbed in May and stockpiles were little changed, as importers increased purchases before the Muslim fasting month of Ramadan starts in July, a separate survey showed last week. Rising demand may help boost revenues at companies such as IOI Corp. and Sime Darby Bhd. (SIME)

A further decline in stockpiles “should be supportive of prices,” said Alvin Tai, an analyst at OSK Holdings Bhd. “Prices should be bottoming out at this kind of level but we don’t know about the demand side; with all these crises people may just hold back purchases.”

Seven-Month Low
The contract for delivery in August advanced as much as 1.9 percent to 3,008 ringgit ($942) per ton on the Malaysia Derivatives Exchange and traded at 2,961 ringgit by 4:42 p.m. yesterday, snapping four days of losses. The most-active contract, which reached 3,628 ringgit on April 10, closed at 2,953 ringgit on June 4, the lowest level since Nov. 1.

Exports from Malaysia gained 2.4 percent to 1.38 million tons last month, surveyor Intertek said May 31. Sales were 1.33 million tons in April, according to Malaysian Palm Oil Board data. Indonesian shipments may have gained 9 percent to 1.63 million tons from 1.49 million tons in April, last week’s survey showed. Production probably increased to 2.1 million tons from 1.9 million tons, while stockpiles were little changed at 1.85 million tons, it showed.

“The gain in exports is due to pre-Ramadan stock-up from Bangladesh, India and the Middle East,” said Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd. “Despite the global economic downturn, it shows that demand for palm oil is still very resilient.” Consumption of staples climbs during Ramadan as followers break daylong fasts with communal meals.

Further Declines
The lower inventory is “bullish,” but prices could decline further, depending on the global economy and the price of crude oil, said Lim. Crude oil traded near the lowest level in almost eight months reached on June 4, on speculation policy makers from the U.S. to China will take steps to help growth. Crude competes with palm for use in biofuels.

Malaysia’s output may climb in the next two-to-three months reaching 19 million tons, Minister of Plantation Industries & Commodities Bernard Dompok said June 4. The country produced a record 18.9 million tons in 2011, according to the board.

The survey showed that production for the first five months will be 7.4 percent lower at 6.3 million tons from 6.8 million tons in the same 2011 period. Output was down 14 percent in March from a year ago and 17 percent lower in April, data from the board shows.

El-Nino Impact
“This is another confirmation that for three consecutive months, tree stress is taking its toll on production,” Kenanga Investment Bank’s Lim said. “This is due to the El-Nino impact which happened two years ago which has caused tree stress -- meaning the tree produces more male flowers than female flowers which won’t transform into fresh fruit bunches. That’s explains why production is significantly lower.”

Output will drop in the first half, Dorab Mistry, a director at Godrej International Ltd., said March 27. From March, production each month will be less on a year-on-year comparison, and the low cycle may end in November, according to Mistry, who has traded the cooking oil for more than three decades.

The oil-palm bears fruit all year, with more output in the second half. Drought, such as the one brought about by El Nino in 2010, can stress trees, reducing yield.

The productivity of the fully matured trees was affected by the lagged weather effect, OSK Holdings’ Tai said. “Mature trees are not recovering in terms of production. Usually, at this time of the year, production is already well on its way up, but this time around it’s still disappointing.”