(Agrimoney) – Smaller-than-expected stocks helped palm oil prices in Malaysia bounce back on Monday.
Malaysia’s palm oil stocks grew less rapidly than expected over the last month, thanks to stronger-than-expected exports, and slower-than-forecast production.
Output has been hit by a spell of dry weather coupled with heavy air pollution.
Smaller than expected stocks
Data from the Malaysian Palm Oil board (MPOB) showed palm oil stocks up about 6% to 2.63m tonnes at the end of September, compared to 2.49m tonnes at the end of August.
This leaves inventories at their highest level in nearly three years, but still slightly lower than the 2.65m tonnes that analysts were expecting.
The slower growth in stocks was the result of faster-than-expected exports, which reached 1.68m tonnes last month, some 30,000 tonnes above the level that analysts were expecting.
And production was also short of forecasts in September, at 1.96m tonnes in September – besides being below the record 2.05m tonnes produced in August.
Malaysia’s palm oil output is expected to decline over the rest of the year, in part thanks to a seasonal trend toward lower production from a high typically seen in September or October, but which this year seems to have been reached in August.
El Nino effect
Indeed, output is expected to continue its fall ahead, as a result of dry weather connected to the El Nino weather pattern, which is associated with lower rainfall in South East Asia.
The Malaysian Palm Oil Council has said that it expects El Nino to reduce the country’s production by up to 1m tonnes this year.
Malaysia is the world’s second largest palm oil producer, and Indonesia, the world’s largest, is also affected by El Nino.
The haze
“September is usually the peak month of production, that means the haze is affecting thing more than we thought,” said Edward Hugo, of VSA Capital.
Palm oil production in south-east Asia has been threatened by the so called “haze”: heavy air pollution caused by forest fires in Indonesia.
“The haze has been exaggerated by El Nino,” said Mr Hugo. “When it’s dry it’s easier for the fire to spread.”
The fires are caused, at least in part, by illegal clearing of land for oil palm planting.
Currency falls back
Palm futures also got a boost from a weaker Malaysian ringgit, which supports prices denominated in that currency, and makes exports to other markets more competitive.
The ringgit, which as been Asia’s worst performing currency this year, was bouncing last week, recording its strongest 5-day streak in decades.
But hawkish noises from the US Federal Reserve, which suggest that the US is preparing to raise interest rates, supported the dollar, and bought the ringgit rally to a halt on Monday.
And data on Malaysia’s industrial growth showed a year-on-year rise of 3.0% in August, the slowest pace of growth in over a year.
The Malaysian currency was down as much as 1.3% against the greenback at one point.
Weaker exports
Nonetheless, latest palm oil export data suggests weaker exports this month.
Cargo surveyor Intertek Testing Services saw palm oil exports in the first ten days of October down 11.3% to 459,379 tonnes, from the 517,600 tonnes in the same period of September.
And surveyor Societe Generale de Surveillance saw exports over the first 10 days of October down 9.5% compared to September 1-10.
“This is a supply-led rally. I’d feel a lot better if consumption were getting better,” said Mr Hugo.
December palm oil futures in Kuala Lumpur closed up 1.8% at 2,257 ringgit a tonne, in their first rise after four sessions of sharp decline..
Indeed, futures were still well down 6.5% from a week before
