Palm oil futures ended their longest winning streak in 18 months after data showed Malaysia’s inventories swelling to their largest in nearly three years, as exporters lost out to Indonesian rivals.

Palm oil futures for December settled 3.8% lower in late deals in Kuala Lumpur at 3,692 ringgit a tonne, recording their first decline in eight sessions.

That represented the vegetable oil’s longest winning streak since March last year, on a benchmark contract basis, and had added 18.9% to prices.

Tuesday’s pullback followed data from the Malaysian Palm Oil Board showing that inventories of the vegetable oil in Malaysia – the second-ranked producer and exporter – swelled by nearly 221,000 tonnes last month to 2.32m tonnes, the largest since October 2019.

The figure was also above the 2.27m-tonne number investors had expected, according to a Reuters poll.

‘Big favour’

The expansion reflected a recovery in exports by Indonesia, the biggest palm oil producer and shipper, said Ivy Ng Lee Fang, regional head of agribusiness at CGS-CIMB Securities.

Indonesia’s temporary scrapping of export taxes, since July – in the face of an inventory surge caused by a short-lived ban on shipments, imposed in April – means that its exporters “are selling their palm oil at a good price” compared with that being offered from Malaysia, Ms Ng told GrainPriceNews.

“Indonesia’s government is doing a big favour to the country’s plantations.”

Separately on Tuesday, data from industry group Gapki showed Indonesia’s palm oil exports in August soaring by 60% month on month to 4.33m tonnes, the highest for any month in at least three years.

The shipment splurge enabled a drawdown in Indonesia’s inventories to 4.04m tonnes in August – shrinking by 32% for the month, and by 44% from the high of 7.23m tonnes reached in May following the country’s three-week export ban.

Export competition

Malaysia’s exports, which shrank by 1.9% in August, staged some recovery last month, by 9.3% to 1.42m tonnes, the MPOB data showed.

However, they remained down 11.9% year on year, and indeed were at their second lowest for a September in 13 years.

September and October are typically big months for Malaysian exports, with supplies bolstered by the seasonal high in production.

It appeared that Malaysian exports were continuing to face strong competition, with Indonesia’s export tax likely lower for the first half of October, Ms Ng said.

Separately, cargo surveyor ITS reported Malaysia’s palm shipments tumbling by 17.3% month on month in the first 10 days of October to 350,767 tonnes, reflecting a particular decline in exports to India.

However, rival AmSpec Agri was more upbeat, reporting a 0.5% growth in exports for the period.

‘More than happy to keep stocks’

Malaysia’s palm oil production last month grew by 2.6% from August to 1.77m tonnes, to take cumulative output for 2022 narrowly back above the 2021 equivalent.

Ms Ng said that she expected data for the rest of 2022 to come in “flattish to better”, remaining constrained by a labour shortage which “Malaysia’s palm oil industry has not resolved”.

She added that producers “may be more than happy to keep stocks, if they think that prices will be better towards the end of the year”, when the seasonal downswing in output can offer support to values.

“Malaysia has storage up to 3m tonnes.”

However, she flagged too the “risks of recession, or the end of the Ukraine war, which would mean stocks drawing down less than had looked likely”.

While economic slowdown would undermine demand for palm oil, which is largely used in the manufacture of biodiesel, the end of Black Sea hostilities would stand to boost Ukraine’s shipments of sunflower oil, a key rival to palm oil.