(Bloomberg) – Rising production and reserves of palm oil combined with the slump in crude will suppress prices, said a minister in Malaysia, the second-largest supplier of the tropical oil used in food and biofuels. Futures fell.
“The regular build-up of stock, particularly towards the last quarter of the year, will continue to put pressure on palm oil prices,” said Plantation Industries and Commodities Minister Douglas Uggah Embas. The supply situation will be “exacerbated” by large harvests of competing oilseeds and expanding palm production in other countries, he said.
While futures have rallied 20 percent from a five-year low in September after Malaysia’s worst floods in four decades, prices still declined 15 percent decline in 2014. That’s the third drop in four years as stockpiles in Malaysia reached a 21-month high and U.S. farmers harvested a record soybean crop, used to make an alternative oil. Crude prices dropped almost 50 percent last year, eroding demand for biofuel.
“These challenges will have to be met in 2015,” Uggah said in a speech read by the ministry’s secretary-general Himmat Singh at a conference in Kuala Lumpur on Monday.
Futures dropped 0.3 percent to 2,305 ringgit ($646) a metric ton on Bursa Malaysia Derivatives. They lost 1.5 percent last week after gaining for three weeks on improved weather in Malaysia. Prices hit 1,914 ringgit in September, the lowest since 2009. Malaysia and top producer Indonesia together supply 86 percent of the world’s palm oil, U.S. Department of Agriculture data show.
Record Production
The “price will continue to be volatile” during the first half of 2015, Choo Yuen May, director-general of the Malaysian Palm Oil Board, said at the conference. Production will probably climb to 20.09 million tons this year, said Ramli Abdullah, the director of MPOB’s economics and industry development division. Output in 2014 reached an all-time high of 19.67 million tons, board data show.
The monsoon that hit the east coast of Peninsular Malaysia spawned the worst floods since 1972, according to Maybank Investment Bank Bhd. Flood damage reduced Malaysian output to 1.36 million tons in December, the lowest for that month since 2010 and a 22 percent slump from November, the biggest for any month since December 2006, board data show. The decline reduced inventories for the first time in six months.
Palm oil’s rally will probably last because of the long-term impact of heavy rains on harvesting, roads and bridges, Macquarie Group Ltd. said in a Jan. 7 report.
U.S. farmers will harvest a record 3.969 billion bushels (108.01 million tons) of soybeans in the season that started Sept. 1, the USDA said Jan. 12. World reserves in August will reach an all-time high 90.78 million tons, up from 66.16 million a year earlier, the agency said.
