KUALA LUMPUR (Nikkei Markets) -- Palm oil prices may climb further and lift shares of planters amid expectations of seasonally-slower output growth in the months ahead following an unexpected drop in October stockpile.
Tree stress from recent dry spell and disruption to harvest during upcoming monsoon season are also expected to weigh on incoming supply, helping to whittle down inventory at a time when demand from China is likely to fall during winter months, analysts said.
"We remain optimistic over the palm oil demand-supply dynamics," said Affin Hwang Investment Bank Analyst Nadia Aquidah. "We expect the global palm oil inventory to gradually decline from 2020 onwards with higher exports and higher consumption of palm oil products."
Shares of Sime Darby Plantation, the world's largest palm oil producer by acreage, rose as much as 4% Tuesday on the Kuala Lumpur stock exchange. The Bursa Malaysia Plantation Index gained nearly 1.4% and outperformed the broader market.
Palm oil futures have climbed more than 23% since the end of September to their highest in nearly two years. Importers typically buy palm oil ahead of winter season as palm oil, a tropical oil used in everything from snacks to cosmetics, solidifies in cold weather.
"Palm oil stockpile will continue to trend down in the next few months as low production season has commenced," said Hong Leong Investment Bank Analyst Chye Wen Fei. "This will more than mitigate the absence of near-term festive-driven demand catalyst and seasonally weaker demand from China."
Malaysia, the world's top palm oil producer after Indonesia, reported a 4.1% decline in inventory in October from a month earlier as exports surged, while output declined, official data showed. Stockpile totalled 2.35 million tons in October compared with 2.45 million tons in September.
Exports grew 16.4% to 1.64 million tons in October from 1.41 million tons in the previous month, according to Malaysian Palm Oil Board. Production fell 2.5% to 1.80 million tons in October from 1.84 million tons in September.
"We reckon that exports would likely remain strong ahead of the implementation of the export duty in both Indonesia and Malaysia in January 2020," UOB Kay Hian Analysts Leow Huey Chuen and Jacquelyn Yow wrote in a note to clients.
In terms of markets, shipments to India, the world's biggest buyer of vegetable oil, declined more than 29% to 219,956 tons in October. Exports to China meanwhile surged 24% to 275,442 tons and delivery to the European Union surged 44% to 200,855 tons.
"We believe the anticipation of a higher demand growth rate for palm-oil products as compared to the production growth rate has boosted CPO prices and negated any concerns over an import ban by India," said Affin Hwang's Nadia.
Sime Darby Plantation ended 3.4% higher at 5.15 ringgit on Tuesday, while the benchmark FTSE Bursa Malaysia KLCI edged 0.1% higher.