Palm Reserves in Indonesia Climbing to Highest in 15 Months

Sep 16, 2014

The Jakarta Globe. Palm oil stockpiles in Indonesia, the world’s largest supplier, probably surged to the highest level in 15 months in August because of increased production and reduced demand from importers.

Inventories jumped 24 percent to 2.5 million metric tons from 2.02 million tons in July, according to the median of estimates from four planters and one refiner compiled by Bloomberg. That’s the highest since May 2013, previous surveys show. Output surged 19 percent to 2.55 million tons, the largest gain since June 2013, while shipments fell 2.2 percent to 1.8 million tons. Output and export data for August are from five planters and one refiner.

Palm slumped into a bear market in July and reached a five- year low this month as global cooking-oil supplies expanded and US farmers prepared to harvest a record soybean crop. Prices risk extending declines to approach output costs, says Dorab Mistry, director at Godrej International. To boost sales, Malaysia, the second-biggest producer, scrapped an export tax for two months. Indonesia has no plans for changes, Trade Minister Muhammad Lutfi said Sept. 10.

“A zero tax in Malaysia will put pressure on Indonesian exports,” said Derom Bangun, chairman of the Indonesian Palm Oil Board. “At least 20 percent to 30 percent of demand from India will turn to Malaysia,” he said by phone on Sept. 9. The world’s biggest buyer is India followed by China.

Tax cut

Futures in Kuala Lumpur, the global benchmark, have tumbled 21 percent this year to settle at 2,101 ringgit ($651) a ton on Monday. Prices touched 1,914 ringgit on Sept. 2, the lowest level since March 2009. The Indonesian Palm Oil Association may release August export data this week. The percentage changes for production and reserves are based on previous surveys.

Malaysia scrapped the duty for crude palm oil exports on Sept. 4 for two months to increase shipments and reverse a decline in prices, the Ministry of Plantation Industries and Commodities said.

Indonesia, where the tax is 9 percent this month, calculates the rate according to the average of prices in Jakarta, Rotterdam and Kuala Lumpur. Sales attract no levy if the average is $750 or less over four weeks.

“Production may climb further this month” because of the high-output cycle that extends to October, according to Eddy Martono, a director at Tangerang, Banten-based planter Mega Karya Nusa. “There may be some disruption from the hot spots” in Sumatra and Kalimantan, he said by phone on Sept. 10, referring to forest fires.

Weather risks

Satellite images showed at least 176 hot spots on Sumatra island last week, according to an Antara news agency report on Sept. 10, citing a statement from the National Disaster Mitigation Agency. Sumatra is the main palm producing region.

Stockpiles will continue to rise and may peak in December, Mistry said in remarks prepared for a conference in Shanghai on Monday. Reserves in Malaysia jumped 22 percent to 2.05 million tons in August from July, the biggest percentage gain since October 2009, Malaysian Palm Oil Board data show.

While demand prospects may improve in the fourth quarter as the high-output season ends, the record US crop and abundant supplies will limit price gains, Rabobank International analysts including Pawan Kumar said in a report Sept. 1.

The soybean harvest in the US, the world’s top grower, will reach a record 3.913 billion bushels this year, the US Department of Agriculture forecast on Sept. 11. Soybean oil’s premium to palm has averaged about $92 a ton this year, compared with $244 in 2013, data compiled by Bloomberg show.

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