Malaysian palm oil stockpile seen climbing in coming months after August jump
11/09/2023 (The Edge Malaysia), Kuala Lumpur - Malaysia’s palm oil stockpile is seen to climb further in the coming months as production enters a seasonally higher period, following a higher than expected jump in August.
The Malaysian palm oil stock in August surpassed the two-million-tonne level on stronger-than-expected production and weaker exports, the Malaysian Palm Oil Board (MPOB) stated in a report on Monday.
Stockpile rose 23% month-on month to 2.12 million tonnes, which is the biggest monthly increase since August 2021 and the highest since January this year.
According to MPOB, national crude palm oil (CPO) production also climbed 8.9% to a 10-month high of 1.75 million tonnes, while exports fell 9.8% to 1.22 million tonnes, against a forecast of 1.33 million tonnes.
Demand for palm oil is expected to be affected in the near term on waning demand from China, the world’s second largest importer of the commodity, due to its weaker economic growth.
However, there is some respite as demand from European buyers are expected to shift to palm, given soybean oil is currently trading at a heavy premium, said Phillip Futures Sdn Bhd’s derivative products specialist David Ng.
“[This] will make palm oil more attractive for European countries as they shift their preference over to palm oil. Once global economic headwinds start to subside, we should be able to see higher demand for palm oil eventually,” Ng told The Edge.
While industry players expect that the El Nino weather impact could curb palm yields, the impact on production has yet to be seen.
“The effect can only be seen six months after the start of the weather pattern,” said Ng. “We are most likely able to assess the impact of an El Nino occurrence in the first or second quarter next year,” he said.
Ng predicts that the futures market will see prices weaken in the near term at RM3,600 per tonne, before it regains strength towards year-end at RM4,000 per tonne in line with weaker production pace and also expectation of lower stocks.
MIDF Research in its note on Sept 6 indicated that El Nino events, which are expected to constrict the supply side, will keep CPO prices elevated at RM3,800 to RM4,200 per tonne.
It added palm oil closing stocks in major importing countries are still on the high side, with India's stock reported at 76.6% year-to-date, China at 100%, Pakistan at 69.8% and Bangladesh at 100%. On Monday, crude palm oil futures contract for November closed at RM3,762 per tonne.
Coupled with inflationary pressure and tight household spending, the research outfit anticipated demand would remain sluggish the second half of 2023. “All factors considered, we maintain our 'neutral' stance on the sector with CPO target price of RM3,500 [per tonne],” the firm said.