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Malaysia's palm oil stocks to hit two-year low after output falls
The drop in inventories in the world's second-largest palm oil producing country after Indonesia could support benchmark futures FCPOc3, and sustain the commodity's premium over competing oils.
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A worker harvests oil palm fruit in Pucok Lueng, West Aceh regency, Aceh, on Feb. 4, 2023. The reference crude palm oil price dropped US$41.26 to $920.57 in the period of Feb. 1-15 due to the declining market demand in India
and China as well as the deprivation of the Malaysian ringgit against the greenback. (Antara/Syifa Yulinnas)
M
alaysia's palm oil stocks are set to fall to 1.5 million metric tons by the end of February, their lowest level in nearly two years, as floods have hit production and the Ramadan festival has boosted demand, a senior regulatory official told Reuters.
The drop in inventories in the world's second-largest palm oil producing country after Indonesia could support benchmark futures FCPOc3, and sustain the commodity's premium over competing oils.
Floods in eastern parts of the country have reduced palm oil production in both January and February, Ahmad Parveez Ghulam Kadir, director-general of the Malaysian Palm Oil Board (MPOB), said.
Widespread flooding has hit regions across Malaysia since November last year, displacing more than 90,000 people. Another wave of floods in January forced thousands from their homes in Sarawak and Sabah.
"This is the time where we will see buying increase, which I believe will keep prices stable and bring down stock levels," he said.
The holy month of Ramadan starts at the end of this week. Palm oil consumption typically surges as Muslims use the oil to prepare meals to break their fast and during banquets to celebrate the Idul Fitri holiday that marks the end of the fasting period.
Malaysia's palm oil stocks fell 7.55 percent in January from December to 1.58 million tons, the lowest level in 21 months due to a plunge in output.
Lower production has resulted in tight supplies, ensuring palm oil trades at a premium over rival soyoil and sunflower oil, he said.
Palm oil's premium could lead to lower demand in price-sensitive markets such as India, but prices will remain stable until the supply situation improves, he said.
Despite difficulties so far this year, Malaysia's production is likely to rise to 19.5 million tons in 2025, up from 19.34 million tons a year ago, due to increased labour supplies and ongoing improvements in agricultural practices, he added.
