(BLOOMBERG) -- Palm oil inventories in Malaysia probably swelled to the highest in five months in July as production in the world’s second-largest grower surged the most in a year.
Stockpiles rose about 11 percent from a month earlier to 2.42 million metric tons, the highest since February and biggest increase since November, according to the median estimate of nine planters, traders and analysts surveyed by Bloomberg. Crude palm oil production climbed 17 percent to 1.56 million tons, the largest rise since July 2017, according to the survey. Exports were probably flat at 1.13 million tons. The Malaysian Palm Oil Board will release official data on Aug. 10.
Futures dropped 5.7 percent in July, the most since November, on concerns about sluggish demand and a looming high-production season. Surging stockpiles prompted Indonesia, the world’s biggest palm oil producer, to expand its biodiesel mandate from September. Forecasts for Malaysian inventories ranged between 2.27 million and 2.47 million tons and production estimates were between 1.47 million and 1.65 million tons.
“Seasonally stronger production in the second half is the key driver behind the expected increase in inventory,” said Alan Lim, plantations analyst at MIDF Amanah Investment Bank Bhd. in Kuala Lumpur. Stockpiles should “stubbornly stay above 2 million tons” throughout the year, limiting any upside in crude palm oil prices, he said.
Palm oil for October delivery on Bursa Malaysia Derivatives declined 0.2 percent to 2,187 ringgit ($535) a ton on Friday. The most-active contract dropped 13 percent this year.
“On the demand side, we believe that the biggest swing factor will be the speed and momentum of Indonesia’s biodiesel industry to increase its production and boost the demand for palm oil,” MIDF’s Lim said.
Indonesia this week said it will expand its biodiesel mandate to railways and power plants, with biofuel consumption estimated at 4 million kiloliters this year and as much as 6.2 million kiloliters in 2019.
The Indonesian Palm Oil Association predicts the mandate will absorb about 4 million tons of palm oil this year, or about 10 percent of the country’s production. Veteran palm oil analyst Dorab Mistry, director at Godrej International Ltd., predicts consumption will be capped at 3.5 million kiloliters this year and be between 4.5 million and 5 million kiloliters next year.
Malaysia’s imports were forecast at 50,000 tons, compared with 85,889 tons in June. Estimates for domestic consumption ranged between 230,000 tons and 270,000 tons. ***
July figures, in million metric tons, are based on the median of nine estimates.
||July 2018 (Survey)