KUALA LUMPUR (Nikkei Markets) -- Malaysia's palm oil inventory fell 4.1% in November to a three-month low as output fell more than exports, official data Tuesday showed.
Stockpile in Malaysia, the world's largest palm oil producer after Indonesia, totaled 2.26 million tons in November against 2.35 million tons in October, according to Malaysian Palm Oil Board. Exports slumped 14.6% to 1.40 million tons while production fell 14.4% to 1.54 million tons.
Analysts said the latest data came in slightly below market expectations, sending shares of palm oil planters lower, though inventory will likely continue to shrink as the crop enters its low production season in the coming months.
"End month stocks draw down was not as deep as market expected," said Sathia Varqa, owner and co-founder of Palm Oil Analytics. "Overall, the report is seen as bearish on prices."
Crude palm oil futures for February delivery fell as much as 0.9% to 2,875 ringgit on Bursa Malaysia Derivatives following release of the provisional data, before rebounding to above 2,900 ringgit on Tuesday.
Shares of Sime Darby Plantation, the world's biggest palm oil producer by acreage, slipped 0.4% to 5.28 ringgit while the broader Bursa Malaysia Plantation Index also fell 0.4%.
Still, palm oil prices have climbed to their highest in nearly three years after racking up gains of nearly 37% so far this year as tree stress from a recent dry spell weighed on output. Further, harvesting disruption from upcoming monsoon season is also expected to help to whittle down inventory.
Prices of the edible oil used in everything from snacks to cosmetics have also recently rallied above that of soybean, a key substitute, for the first time in nearly nine years. Indonesia, the world's largest producing nation of palm oil, has also mandated higher use of palm oil in biodiesel fuel.
Palm oil production is expected to continue to decline until June next year before rebounding, said Chong Hoe Leong, an analyst at Public Investment Bank. The declining output could help to bring down inventory to around the two-million-ton level by end of this month, he projected.
Demand from China is likely to pick up ahead of Lunar New Year celebration and cushion weaker shipments to other countries, Chong noted. "Given the recent CPO price rally, it has given buyers more options to choose edible oil."
In terms of markets, shipments to India, the world's biggest importer of vegetable oil, dropped 35.1% month-on-month in November, while exports to China surged 23.5%. Exports to European Union slipped 11.5% during the month.
Palm oil from Malaysia faced a boycott call in India following Prime Minister Mahathir Mohamad's comments on Kashmir. Mahathir told the United Nations General Assembly that India had "invaded and occupied" the Kashmir state, a Muslim-majority region claimed by both India and Pakistan.
-- Gho Chee Yuan