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Malaysia's December palm oil inventory at new record high

Shrinking output likely to support prices despite swelling stockpile

Stockpile in Malaysia totaled 3.22 million tons in December, edging higher from the previous month's 3.01 million tons, according to data issued by Malaysian Palm Oil Board.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's palm oil inventory in December swelled nearly 7% to a fresh record high amid weak demand, and the expansion in stockpile for seven months in a row is expected to weigh on prices of the widely-used commodity.

Stockpile in Malaysia, the world's second-largest palm oil producer after Indonesia, totaled 3.22 million tons in December, edging higher from the previous month's 3.01 million tons, according to data issued by Malaysian Palm Oil Board.

The increase was higher than market expectations, potentially pressuring prices of the edible oil that is used in everything from snacks to cosmetics.

"Prices are likely to come under renewed pressure" as expectation was for a 4%-5% rise in inventory, said Singapore-based Sathia Varqa of Palm Oil Analytics. Exports also came in "dismal" under the 2%-8% rise expected by market, he said.

Inventory was expected to have increased 4% to 3.14 million tons in December, according to a survey of 24 plantation areas by CIMB Investment Bank.

The most-traded crude palm oil futures for March delivery fell 1.2% to 2,157 ringgit a ton on the Bursa Malaysia Derivatives after the data. Shares of Sime Darby Plantation, the world's largest palm oil producer by acreage, fell 1.2% in a relatively subdued market but ended 0.5% higher at 5.05 ringgit apiece.

Some analysts are hopeful that prices may edge higher after declining more than 15% last year as production slows and exports pick up in the months ahead.

Production has been falling since October and may gradually decline in the months ahead, which could help perk up prices, said TA Securities' analyst Angeline Chin, who is forecasting an average crude palm oil price of 2,400 ringgit a ton in 2019. The first quarter is also typically a low-output season, partly due to holiday-shortened February, she said.

Export in December was relatively flat at 1.38 million tons when compared to the preceding month. Output, meanwhile fell 2.2% month-on-month to 1.81 million tons from 1.85 million tons. The data is provisional and may be revised later.

Output is expected grow 3.5% to 20.5 million tons in 2019 as more plantations mature, according to government forecast. Prices meanwhile is expected to rise to 2700 ringgit per ton-to-2800 ringgit a ton this year.

To help deplete the swelling stockpile and boost demand over the longer-term, the Malaysian government has pushed to implement a so-called biodiesel mandate for transportation sector from December and will expand it to the industrial sector from Jul. 1, 2019.

The program, which aims to blend 10% of palm-based methyl ester with 90% traditional petroleum diesel for sale at retail pumps nationwide, is expected to consume 761,000 tons of palm oil a year.

--Jason Ng

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