Malaysia’s palm oil stocks rose by more than expected last month, to their largest in nearly three years – although future prices rose nonetheless, buoyed by separate data showing exports made a strong start to September.
Palm oil inventories in Malaysia, the second-ranked producer of the vegetable oil, expanded by 321,863 tonnes in August to reach 2.09m tonnes – topping for the first time since December 2019 the 2.0m-tonne level, which is viewed as a marker of comfortable stocks.
The increase was the largest in a year, and exceeded too the forecasts of investors, who had expected a 2.03m-tonne figure, according to a Reuters poll.
However, palm oil futures for November, the best-traded lot, stood 2.1% higher at 3,667 ringgit a tonne in afternoon deals in Kuala Lumpur despite the bigger-than-expected supply forecast.
The buoyancy in futures was attributed in part to the extent to which they have already fallen from March’s record intraday high of 7,268 ringgit a tonne.
The November lot on Thursday, touched 3,481 ringgit a tonne, the lowest for a benchmark contract since June last year.
However, it reflected too separate data, from cargo surveyors, showing a firm start to this month for Malaysian palm oil exports, a European vegetable oils trader told GrainPriceNews.
Intertek Testing Services said that palm exports from Malaysia – the world’s second-ranked shipper, after Indonesia – rose by 16.2%, month on month, in the first 10 days of September, fuelled by growth in Chinese orders, with AmSpec Agri putting growth at 9.3%.
“Markets are forward looking, and it is often the case that they are far more interested in the latest trend in exports than the stocks data in the rear-view mirror,” the trader said.
September’s firm start to Malaysian shipments comes at a sensitive time, with the country facing enhanced competition from Indonesia, which is attempting to run down its stocks after a build prompted by an export ban imposed from April 28 to May 23.
Joseph Tek, who in August became chief executive of the Malaysian Palm Oil Association, said last week that “concerns remain over demand for Malaysian CPO [crude palm oil] as neighbour Indonesia revises taxes and raises exportable volumes to clear its inventories”.
Indonesia’s strategy “could potentially weigh on the benchmark CPO prices and render tough competition”.
Export levy changes
Indonesia has extended until the end of October a zero-levy policy for its palm oil exports, but thereafter will enforce toughened tariffs.
From November 1, exports will incur a maximum left of $240 per tonne, when the crude palm oil reference price hits more than $1,430 per tonne.
Before the levies were waived in mid-July, a maximum $200 tariff kicked in when the crude palm oil reference price topped $1,500 per tonne.
Meanwhile, at the other end of the scale, the price band incurring the minimum levy of $55 per tonne has been narrowed to up to $680 per tonne, from up to $750 per tonne.
Prices of $680-730 per tonne will now incur a levy of $65 per tonne, and $730-780 per tonne a levy of $75 per tonne, with that on higher prices progressing gradually to the maximum of $240 per tonne.
‘Beyond breaking point’
Malaysia’s palm oil exports in August fell by more than 25,000 tonnes month on month to a little under 1.30m tonnes – falling short of the 1.32m-tonne figure that investors had expected.
August’s larger-than-expected inventory figure also reflected better-than-forecast production, at 1.73m tonnes.
Investors had expected an output figure just shy of 1.70m tonnes – which would have showed a rare decline for August, which is typically one of the strongest months for production, which peaks typically in September-October.
Mr Tek also warned last week that Malaysia had suffered crop losses of 15-25% thanks to the slow return after Covid of the migrant workers on which the country’s plantations rely on for most of their labour.
The output losses were “due to the snail’s pace of return of foreign workers, even as the oil palm trees are now at their peak cropping time of the year and with the monsoon season just around the corner”, he said.
“The plantation industry is no longer at the breaking point – it has been pushed beyond its breaking point.”