Malaysian Palm Oil Inventory Drops as Ramadan Slows Harvests

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Palm oil stockpiles in Malaysia, the second-largest grower, probably fell in August from a month earlier as the Muslim fasting month of Ramadan slowed harvests, according to a Bloomberg News survey.

Inventories fell 5 percent to 1.9 million metric tons last month from 2 million tons in July, according to the median estimate in a survey of three analysts and two plantation companies this week. Stockpiles were 1.71 million tons a year earlier, according to the Malaysian Palm Oil Board, which is scheduled to publish the official estimates on Sept. 12.

Falling inventories may help stem a 23 percent drop in prices from a 35-month high of 3,967 ringgit ($1,330) a ton on Feb. 10, and raise costs for users including Nestle SA and Unilever. Futures may average 3,220 ringgit a ton in 2011, Choo Yuen May, director-general of the board, said on Aug. 8.

Production is “lower than July because of the fasting month and Eid celebrations” Arhnue Tan, senior investment analyst at ECM Libra Capital Sdn., said. Exports will be “flattish” as a gain in shipments to China will counter a decline in exports to Pakistan and India, she said.

Output probably declined 4.6 percent to 1.67 million tons in August from a month earlier, while shipments were little changed at 1.73 million tons, the survey showed.

Plantation laborers would have worked fewer hours during Ramadan, which began Aug. 1 and preceded the Eid festival on Aug. 30. Markets were closed in Indonesia and Malaysia, the largest growers, during most of last week for the holidays.
‘Productivity Dropped’

“Most people would have started going back home a week before, so last month’s productivity would have dropped,” Ivy Ng, an analyst with CIMB Investment Bank Bhd., said by phone from Kuala Lumpur. “It’s difficult to repeat the same high growth every single month, so that led to slightly down production in August.”

Output of palm oil, used mostly in food, was at 1.74 million tons, 1.75 million tons and 1.75 million tons in May, June and July respectively. This compares with 1.39 million tons, 1.42 million tons and 1.52 million tons recorded in the same months last year, according to data from the board.

Palm oil output probably gained 8.2 percent to 12 million tons in the eight months through August from a year earlier, according to the survey. Production may increase to 18.3 million tons in 2011 from 17 million tons last year, according to board’s Choo. Output typically peaks between July and October.

November-delivery futures climbed 1.9 percent to close at 3,042 ringgit a ton in Kuala Lumpur today. The most-active contract has gained 16 percent in the past year.
Exports

Exports fell 0.6 percent to 1.62 million tons in August compared with the previous month, surveyor Intertek said Sept. 2. Shipments dropped 0.5 percent to 1.62 million tons in August, Societe Generale de Surveillance estimated on Aug. 29.

“Although exports started very strong at the beginning of August, I think the reason why it ended on a flat note was because towards the later part of the month, people started going off for their holidays and trading became less, and ships were not operating,” Ng said. “In September, the reverse will be true, as exports will start off slow because people are coming back from their holidays.”

Output will be higher this month as workers return to work, Ng said. Stockpiles in September may be “flattish to slightly up” as demand may drop amid efforts by Indonesian suppliers to boost exports ahead of a new tax structure which may reduce Malaysian shipments, she said.

Indonesia will cut the maximum tax rate for crude palm-oil exports starting in October while imposing a much lower rate for products to help the domestic industry, Deputy Agriculture Minister Bayu Krisnamurthi said on Aug. 25.

To contact the reporters on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net;

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net;

source:  bloomberg.com

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