Palm oil futures jumped after Malaysia said that its stocks of the vegetable oil fell by far more than investors had expected last month, sapped by a larger-than-expected fall in production.

Kuala Lumpur palm oil futures for February soared by 4.6% to 3,907 ringgit a tonne in afternoon deals, after the Malaysian Palm Oil Board reported Malaysia’s November stocks of the vegetable oil at 2.29m tonnes.

That represented a fall of nearly 120,000 tonnes, a far bigger decline than the dip of less than 20,000 tonnes expected by investors, according to a Refinitiv poll.

It was also the first decline in six months, ending a build driven by some recovery in production year on year against a flat export performance.

Seasonal dip

Production in November typically shows a decline, as plantation output heads for a low point around February.

But this time the month-on-month dip in output, of more than 130,000 tonnes to 1.68m tonnes, exceeded market expectations by 40,000 tonnes.

Although exports, at 1.52m tonnes, also fell short of forecasts, a soft month for imports – the lowest in more than two years – and a strong month for domestic consumption enabled the inventory drawdown.

The data implied domestic demand at an 11-month high of 330,000 tonnes, on GrainPriceNews calculations.

‘What you don’t want to see…’

Despite Tuesday’s gain in futures, prices remain down for this week, having plunged by 6.5% on Monday on a slide attributed to broad weakness in vegetable oil markets, including steep declines on the Dalian market in China, a big palm oil importer.

“The Malaysia data should go quite a way to settling the market, after yesterday’s performance,” a European oilseeds trader told GrainPriceNews.

“What you don’t want to see is stocks accelerating too far above the 2.0m-tonne mark,” a psychologically important market indicator.

Cargo surveyor data on Malaysian exports for this month has also encouraged bulls, with AmSpec Agri reporting volumes for the first 10 days of December up by 14.3% month on month to 480,404 tonnes.

Rival ITS reported the increase at a more modest 5.6%.