Production advanced 6.4 percent to 1.66 million metric tons from April, according to the median of six estimates from planters, analysts and traders compiled by Bloomberg. That’s the highest for the month since the 1.74 million tons produced in 2011, Palm Oil Board data show. Exports rose 7.9 percent to 1.36 million tons, the biggest gain since March 2013, the survey shows. The board releases the data on June 10.
Futures have retreated from an 18-month high in March as output recovered from a seasonal drop in the first quarter and shipments declined. Exports may rise as the Muslim fasting month of Ramadan approaches and demand may also improve because of palm’s deepening discount to soybean oil, according to Rabobank International. Ramadan, when communal meals boost consumption, starts at the end of June this year.
“While production may be high in May, exports going forward will show a better increase because the fall in prices would’ve attracted some buying,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore Pte. “From now on you should see some good interest from overseas.”
Futures fell as much as 1% to 2,394 ringgit ($745) a ton on the Bursa Malaysia Derivatives, and ended the morning session at 2,402 ringgit in Kuala Lumpur. Prices tumbled to a seven-month low of 2,375 ringgit on June 3 after reaching 2,916 ringgit on March 11, the highest level since September 2012.
While exports climbed 7.8 percent to 1.32 million tons in May, according to Intertek, a surveyor, the pace slowed from an advance of 28 percent in the first 10 days of the month. Exports in the first four months fell 13 percent to 5.23 million tons from the same period last year, board data show.
Output may have increased 7.5 percent in the first five months from the same period in 2013, based on board data and the survey estimate for May. Reserves probably climbed for a third month, rising 3.4 percent to 1.83 million tons, according to the survey. Production typically peaks from July to October.
This year, the output surge may last until August and then start to decline year-on-year from September onwards because of the lagged impact of dry weather in February and March, said Alan Lim Seong Chun, an analyst at Kenanga Investment Bank Bhd.
Parts of some growing areas in Malaysia and Indonesia got less than 50 millimeters (2 inches) of rain in January and February, the driest spell since 1997, according to MDA Weather Services in Gaithersburg, Maryland.
El Nino Threat
“Dry conditions in the first quarter may still affect production during fourth quarter, while the El Nino threat signals a potential supply-side impact in 2015,” Rabobank said in a report e-mailed on May 31.
A weak-to-moderate El Nino, which brings drought to the Asia-Pacific region, will probably set in about June-August and may impact Malaysia toward the year-end and the first quarter of 2015, Jailan Simon, director of National Climate Centre at the Malaysian Meteorological Department, said yesterday.
Importers may be encouraged to opt for palm if its discount to soybean oil widens to $150 a ton, Gnanasekar said. The spread reached $106.29 today from $47.25 on Jan. 3, the lowest since February 2011, data compiled by Bloomberg show.
The decline in futures “should end because we expect Indonesian biodiesel producers to be profitable again when prices drop below 2,400 ringgit,” Kenanga’s Lim said by phone in Kuala Lumpur. “That will lead to huge demand.”
Indonesia, which increased the biodiesel blending rates, has become the world’s largest palm oil consumer at an estimated 9.1 million tons this season that ends Sept. 30, up from 7.6 million tons in 2012-2013, according to Oil World. Biodiesel accounts for most of the increase in demand, the Hamburg-based research company said in April.
May 2014 (Survey) April 2014 (MPOB) May 2013 (MPOB) Output 1.66 1.56 1.38 Stockpiles 1.83 1.77 1.82 Exports 1.36 1.26 1.41 Imports 0.03 0.04 0.05 Figures are in millions of tons. NOTE: Import figure is the median of four estimates.
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