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Nikkei Markets

Malaysia's November palm oil stockpile swells to record high

Decline in exports outpaced production fall, surplus supply to weigh on price

Palm oil prices have declined more than 18% so far this year.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's palm oil inventory rose to a record high in November as exports fell at a faster pace than production, raising concerns that the supply overhang will continue to weigh on prices through the months ahead.

Stockpile in Malaysia, the world's second-largest palm oil producer after Indonesia, totalled 3.01 million tons in November, rising from 2.72 million tons in the previous month, according to Malaysian Palm Oil Board. Output slid 6.1% month-on-month to 1.85 million tons from 1.96 million tons.

Analysts said the increase in November's inventory was largely within market expectations although rising supply and poor demand in the months ahead may weigh on prices of the edible oil that is used in everything from snacks to cosmetics.

"Inventory level is likely to stay between 2.8 million tons and 3 million tons until first quarter next year," said Public Investment Bank's analyst Chong Hoe Leong. "There is no sign of easing until first quarter of next year," he said.

Shares of Sime Darby Plantation, the world's biggest palm oil producer by acreage, fell 4.5% in Malaysia following the data release. The broader Bursa Malaysia Plantation Index declined 2.2% on Monday.

Production of palm typically enters its peak season in the third and the final quarter of the year, which are the wettest months in Malaysia. Palm oil prices have declined more than 18% so far this year and the government has pushed to implement a so-called biodiesel mandate to help deplete the swelling stockpile and boost demand.

Output is expected grow 3.5% to 20.5 million tons in 2019 as more plantations mature, according to government forecast. Malaysia will start implementing the B10 biodiesel program for the transportation sector from this month 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.

Export fell 12.9% to 1.38 million tons in November from 1.58 million tons in the preceding month. Shipments to India, the world's biggest importer of vegetable oil, more than doubled to 242,279 tons in November. Exports to China fell 21% to 172,886 tons.

"Seasonally, export will be weaker in January-to-March due to long break in China," said Public Investment's Chong.

Exports to key markets in the northern hemisphere including China typically decline during winter season as palm oil tends to solidify in cold weather.

The most-traded crude palm oil futures contract on Bursa Malaysia Derivatives for February delivery rose 2.2% to 2042 ringgit after declining to a low of 1985 ringgit on Monday.

--Jason Ng and Gho Chee Yuan

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