Palm Oil Reserves in Indonesia Drop to Two-Month Low as Output Falls

Jul 17, 2014

The Jakarta Globe. Palm oil stockpiles in Indonesia, the world’s biggest producer, probably shrank to the lowest level in two months in June as production declined.

Inventories contracted 4.5 percent to 2.1 million tons from a month earlier, the median of estimates from five plantation and industry executives and analysts compiled by Bloomberg shows. That’s 13 percent less than a year earlier. Output fell 4.3 percent to 2.2 million tons, the survey showed. While exports were little changed at 1.7 million tons, they were the most for June since at least 2008, industry data show.

Palm oil, used in everything from candy to cooking oil and biofuel, entered a bear market this week on concern that record soybean stockpiles are adding to a global glut of cooking oils as demand slows from India, the world’s largest palm buyer. Declining prices may extend a third monthly drop in global food costs as measured by the United Nations.

“The trend in production is still low after hotspots disrupted harvesting,” said Eddy Martono, director of Mega Karya Nusa, a plantation company, referring to forest fires. “Domestic demand is increasing because of Ramadan. Output may start to climb in August or September because of the growth cycle,” he said by phone from Jakarta on July 10.

Indonesia’s National Disaster Mitigation Agency said on June 25 that 386 hotspots were detected on Sumatra island, with 95 percent of them located in Riau province. Riau and North Sumatra provinces are the main palm-oil producing areas.

Rising supplies

While output declined in June, it expanded 2.4 percent to 12.9 million tons in the first half from a year earlier, according to calculations based on Bloomberg surveys. Production in Malaysia added 8 percent to 9.06 million tons in the same period, data from the country’s palm oil board showed.

Production in Indonesia may reach a record 30.5 million tons or more this year while Malaysia’s output will total an all-time high of 19.7 million tons to 19.9 million tons, according to Dorab Mistry, director at Godrej International. The two producers account for 86 percent of world supplies.

Mistry is less bullish on palm oil because supplies are increasing and demand is trailing estimates. Futures may climb to 2,800 ringgit ($879) by December if an El Nino occurs from mid-August, Mistry said on June 26, cutting his March prediction for an increase to 3,500 ringgit.

Futures entered a bear market on July 14 and have lost 13 percent this year. The October contract added 0.2 percent to 2,311 ringgit a ton on Bursa Malaysia Derivatives on Thursday. Palm’s discount to soybean oil shrank 70 percent in the past year to $89 a ton, data compiled by Bloomberg show.

Ukraine sunflowers

High sunflower supplies from Ukraine will continue to curb demand for palm oil, Derom Bangun, chairman of the Indonesian Palm Oil Board, said on July 11. India will continue to buy sunflower oil because of a bumper crop in the Ukraine and lower prices, according to B.V. Mehta, executive director of the Solvent Extractors’ Association of India.

Palm imports by India declined for a second month in June as refiners bought more sunflower. Purchases of crude and refined palm oils slid 8.8 percent to 592,749 tons last month from a year earlier, the association said July 15.

Output in Indonesia may increase to 2.9 million tons in September and 3 million tons in October as trees reach their peak period for production, Bangun said by phone from Jakarta.
The Indonesian Palm Oil Association, which doesn’t publish output and inventory data, may release June export figures next week. Production and reserve comparisons are based on surveys.

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