KUALA LUMPUR: Malaysia's January palm oil stocks dropped to a six-month low, below market expectations as exports outpaced production that was hit by heavy rains and floods.
The Malaysian Palm Oil Board said on Thursday that stocks in the world's No. 2 producer of the vegetable oil fell 12.2 percent to 1.42 million tonnes from December, beating expectations for a decline of 10.2 percent.
The lowest stock level since July 2010 will reinforce concerns of tightening global vegetable oil supply and comes after the US Department of Agriculture lowered its estimate for Argentine soy crop, which is processed into competing soyoil.
It could also set the stage for a rally in Malaysian palm oil futures, which hit a fresh three-year high before the data release.
"I won't be surprised if the key 4,000 ringgit ($1,316) level gets breached soon. Stocks are pretty tight and export demand will become much better," said a trader with a foreign commodities brokerage.
Palm oil production in Malaysia dropped 14.2 percent to 1.06 million tonnes as heavy rains and floods in the key oil palm growing areas stalled harvesting and cut off estate roads.
Planters are now concerned that prolonged exposure to moisture could turn the fruits rotten, hurting yields in the next two to three months.
Although exports fell 6.2 percent to 1.21 million tonnes as China slowed down buying ahead of the Lunar New Year in February and other big consumers just bought hand-to-mouth due to the higher prices, demand was still higher than production.
Traders and analysts are now saying exports in February could soar as China starts to restock and emerging market economies scramble to secure supplies to avoid further price rises in palm oil, a key ingredient in cooking oil.
Reinforcing the trend, cargo surveyor Intertek Testing Services reported a 45.7 percent jump in Malaysian palm oil exports for Feb. 1-10 compared to the same period a month ago.
The following is a breakdown of Malaysian Palm Oil Board.
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