Palm Oil Pares Losses as Malaysian Stockpile, Production Drop

By Thomas Kutty Abraham

Dec. 10 (Bloomberg) -- Palm oil futures pared losses after stockpiles in Malaysia, the second-largest producer, dropped in November as output declined the most in almost three years.

Inventories of the cooking oil fell 2 percent to 1.93 million metric tons from a 10-month high in October, the Malaysian Palm Oil Board said in a statement today. Production dropped 20 percent to 1.6 million tons, while exports gained 1.5 percent to 1.5 million tons, it said. The decrease in output was the most since December 2006, according to Bloomberg data.

February-delivery palm oil reversed losses to increase as much as 0.4 percent to 2,535 ringgit a ton ($746) in the afternoon session on the Malaysia Derivatives Exchange after the data was released. The contract later traded down 0.6 percent at 2,510 ringgit a ton at 4:23 p.m. in Singapore.

“Lower stockpiles will be supportive for prices and demand from India may stay particularly strong in the coming months,” Ben Santoso, an analyst at DBS Vickers Securities (Singapore) Pte., said by phone from Singapore. “Inventory levels will continue to decline as the low production cycle kicks in.”

Palm oil, used as an alternative fuel, advanced 48 percent this year as investors bought commodities as a haven from a declining dollar. The commodity may climb to 3,000 ringgit by March as drought disrupts supplies and demand grows in China and India, the biggest users, according to Dorab Mistry, director of Godrej International Ltd., one of India’s biggest edible oil buyers, last week.

Lower Production

Output in Malaysia may drop to 17.5 million tons this year from last year’s record 17.7 million tons, Mistry said. Tree stress and dry weather from the developing El Nino has created a “pessimistic outlook” for output in the second half of 2010, he said on Dec. 4.

The commodity will be supported early next year by lower- than-expected global soybean supply before coming under pressure as the South American harvest gets under way in the second quarter, DBS Vickers’ Santoso said.

Crude palm oil prices may average 2,380 ringgit in 2010, compared with a forecast of 2,300 ringgit this year, he said.

Palm oil exports from Malaysia fell 5.2 percent to 399,575 tons in the first 10 days of December from the same period in November, independent market surveyor Societe Generale de Surveillance said in an e-mailed report in Kuala Lumpur. That compares with 2.2 percent increase in exports at 412,166 tons estimated by another surveyor Intertek said.

January-delivery soybean oil dropped 3 percent yesterday, the most in more than three months, and traded 0.8 percent higher at 39.60 cents a pound at 4:26 p.m. Singapore time. The premium of soybean oil in Chicago over palm oil in Malaysia, which slumped 10.8 percent yesterday, jumped 6.2 percent to $131.21 a ton today, according to Bloomberg data.

To contact the reporters on this story: Manirajan Ramasamy in Kuala Lumpur at rmanirajan@bloomberg.net Thomas Kutty Abraham at tabraham4@bloomberg.net