April 10, 2017 8:48 pm JST

Malaysia's March palm oil output surges to weigh on prices

KUALA LUMPUR (Nikkei Markets) -- Malaysia's palm oil output surged in March, outpacing a robust export demand and lifting inventory for the first time this year, which cloud prospects of sharp gains in price of the commodity that is widely used in ice-creams to lipsticks.

Production of crude palm oil surged 16.3% month-on-month to 1.46 million tons from 1.26 million tons in February, the Malaysian Palm Oil Board said in a statement on Monday. That reading was sharply higher than a 5% month-on-month increase in a CIMB Investment Bank's survey of 24 plantation areas in Malaysia.

Palm oil futures fell to six-month low on Monday after the latest data, extending the loss to over 14% so far this year, while major plantation stocks suffered. The benchmark crude palm oil futures contract on Bursa Malaysia Derivatives for June delivery fell 2.6% to 2,592 ringgit a ton.

Genting Plantation, the palm oil unit of Malaysian gaming conglomerate Genting, fell 1% to 11.38 ringgit in Kuala Lumpur trading while Kuala Lumpur Kepong slipped 0.9% to 24.46 ringgit.

Analysts said palm oil output in Malaysia, the edible oil's second-largest producer in the world after Indonesia, will probably continue to gain pace in the months ahead due to recovery in tree yield. Hefty output of rival vegetable oils will also keep a lid on demand for palm oil.

"We think production will continue to climb," said David Ng, an analyst at Phillip Futures in Kuala Lumpur. "Prices will test 2,500 ringgit a ton over next couple of months, weighed down by rising production, while demand will be sluggish on rising soybean supplies."  

Palm oil stockpile swelled to 1.55 million tons as at March-end, a 6.5% growth from 1.46 million tons a month earlier, according to today's data. Exports meanwhile rose 14.3% in March to 1.27 million tons from 1.11 million tons in February.

Last month, Malaysia lowered the export duty on palm oil for April at 7.5% a ton against March's 8.0% levy. Exports of crude palm oil draw a multi-tier tax rate of between 4.5% and 8.5% that kicks in when prices exceed 2,250 ringgit a ton.

Palm oil prices, after a strong showing last year due to lower supplies tracking severe El Nino weather conditions, are expected to edge lower this year as output rises, analysts said.

U.S. Department of Agriculture's annual prospective planting report, which provides an early insight into incoming supply of U.S. crops this year, indicated a record-high planting across 89.5 million acres for soybeans, the most common substitute for palm oil.

"A higher soybean crop from the U.S. is negative for CPO prices, as it could lead to higher soybean oil supply," said CIMB Investment Bank in an April 3 note.

--Jason Ng

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

Asia300

Genting Bhd.

Malaysia

Market(Ticker): KLS(3182)
Sector:
Industry:
Consumer Services
Casinos/Gaming
Market cap(USD): 8,819.22M
Shares: 3,775.78M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.