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Nikkei Markets

Malaysia's August palm oil inventory at more than year low

Export surge helps trim stockpile despite higher output, while steady China demand seen

Analysts say palm oil exports to China will likely remain robust due to the upcoming festive season.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's palm oil inventory shrank further in August to its lowest in more than a year as a surge in shipments outpaced higher output, official data Tuesday showed.

Stockpile in Malaysia, the world's largest palm oil producer after Indonesia, fell 5.5% to 2.25 million tons in August from July, according to data from the state-run Malaysian Palm Oil Board. Exports of the commodity surged 16% on the month to 1.73 million tons, while production rose 4.6% to 1.82 million tons in August from a month earlier.

Analysts said exports particularly to China will likely remain robust, due in part to the upcoming festive season, helping to absorb higher output -- which seasonally spikes in the next two months -- despite a potential softening in demand from India following its levy of higher import tax on refined palm oil.

"For China, I believe the demand will still be strong," said Public Investment Bank Analyst Chong Hoe Leong. The outbreak of the deadly African swine fever in China will also weigh on demand for the key substitute soybean, which is used in pig food, he said.

Prices of the edible oil used in everything from snacks to cosmetics have risen in recent months as inventory level declined. The most-traded crude palm oil futures contract on Bursa Malaysia Derivatives for November delivery climbed as much as 1.5% to 2,233 ringgit a ton on Tuesday.

India, the world's top vegetable oil importer, last week raised customs duty on Malaysian refined bleached deodorised palm oil and refined bleached deodorised palm olein by 5% for 180 days to safeguard its domestic industry.

The action follows a recommendation last month by the Indian commerce ministry to increase the customs duty by 5% on the items that were being imported from Malaysia, following a surge in shipments owing to a bilateral trade treaty between the two countries.

In terms of markets, shipments to India from Malaysia gained 22% to 566,217 tons in August, while exports to China more than tripled to 308,499 tons.

Exports to India may have increased in August as importers perked up purchases ahead of the widely awaited duty hike, said TA Securities Analyst Angeline Chin. "If exports continue to climb, then the higher production should be not a problem," she said.

Still, higher biodiesel mandate in Malaysia and Indonesia, which together account for more than 80% of the world's palm oil supply, will likely keep prices supported, which may average at 2,100 ringgit per ton through 2019, she added.

Shares of plantation companies ended mostly higher. Sime Darby Plantation, the world's largest palm oil producer by acreage, rose 0.4% to 4.89 ringgit, while the broader Bursa Malaysia Plantation Index closed 0.3% up. That compares with the benchmark FTSE Bursa Malaysia KLCI's 0.5% decline.

--Jason Ng and Gho Chee Yuan

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