Palm oil inventories in Malaysia expanded to an all-time highin November after shipments from the world’s second-largest grower slumped to a seven-month low.
Stockpiles rose for the fifth straight month to 2.91 million tons, 2.6 per cent more than the 2.83 million tons in October, data from the Malaysian Palm Oil Board showed Thursday. That compares with the 2.85 million ton median estimate in a Bloomberg survey published this week. Production declined 19 per cent to 1.65 million tons, the most since December 2014, data show.
The seasonal drop in output may be exacerbated by the impact of one of the strongest El Niños since 1950, helping trim stockpiles and boosting prices poised for an annual gain. Futures have rallied 26 percent from a six-year low in August as Indonesia plans to absorb more of the tropical oil used in everything from instant noodles to shampoo for blending in biodiesel.
“If production continues to be tight for a month or two due to adverse weather conditions, spot prices will definitely be very supportive,” said David Ng, derivatives specialist at Phillip Futures in Kuala Lumpur. “In the next couple of months, we may start to see the weather impact kicking in.”
El Niño weather conditions and the Indonesian biodiesel mandate are a powerful cocktail that has the potential to drive prices in 2016, according to Dorab Mistry, director of Godrej International. Mistry last month cut his forecast for global output growth of palm oil to just 1 million tons in 2016, from an initial estimate of 2.5 million tons.
Weaker-than-expected exports, and a surge in imports of processed palm oil contributed to the surge in inventories in November. Shipments fell 12.4 per cent to 1.5 million tons, the lowest since April, board data showed. Demand for palm oil typically wanes towards the end of the year as the tropical oil clouds in cold weather, prompting some buyers to switch to oils such as soybean oil. Palm oil imports surged 66 per cent to 121,819 tons in November, board said.
Bloomberg News, edited by ESM
