Palm Oil Rises as Inventory Falls Amid Seasonal Production Low

By Claire Leow

Feb. 12 (Bloomberg) -- Palm oil futures in Malaysia gained after stockpiles in the world’s second-biggest producer of the commodity dropped to a nine-month low.

Output of the vegetable oil in the Southeast Asian country fell in January for a second month to 1.33 million metric tons, the nation’s palm oil board said yesterday. This cut stockpiles 8.3 percent to 1.83 million tons.

“Short-term fundamentals have improved,” according to a report by Maybank Investment Bank today. Production dropped as rain in the eastern states of Sabah and Sarawak reduced yields.

Palm oil for April delivery gained as much as 1 percent to 1,945 ringgit ($418) a metric ton on the Malaysia Derivatives Exchange. It was little changed at 1,925 ringgit at the midday break in trading.

Futures may average 2,000 ringgit this year on “improved supply-demand dynamics,” said an AmResearch report from Kuala Lumpur. Prices have averaged 1,861 ringgit so far this year.

Malaysian palm oil exports have risen 12 percent to 724,148 tons between Jan. 1 and Feb. 10, according to Intertek.

Palm oil gained to a four-week high this week after drought damaged soybean crops in South America, the biggest exporters of the vegetable oil crushed from the oilseed. Palm and soybean oils are substitutes.

“There’s an upside to crude palm oil prices if the supply of competing oils tightens,” Citigroup Inc. analyst Penny Yaw said today.

Soybean oil futures for March delivery were little changed at 33.25 cents a pound at 12:49 p.m. Singapore time in after- hours trading on the Chicago Board of Trade. That left it 37 percent more expensive than palm, according to Bloomberg data.

To contact the reporter for this story: Claire Leow in Singapore at cleow@bloomberg.net;