Malaysia's palm oil stocks above expectations on higher-than-projected output in May

Malaysia's palm oil stocks were better than expected in end-May as the monthly fall in production was lower than was projected, data from the nation's official palm oil body showed June 10.

Crude palm oil production fell to 1.46 million mt in May, down 0.07% from April according to the Malaysian Palm Oil Board, or MPOB.

Trade sources expected production to fall to 1.39 million mt citing Ramadan holidays in the month as well as Malaysia's long running labor crunch, according to a survey by S&P Global Commodity Insights.

The most surprising factor was the negligible slip in production in contrast to market expectations of a 4%-5% decline initially, Anil Kumar Bagani, head of research at Sunvin Group, a Mumbai-based vegetable oil brokerage said.

Monthly palm oil exports from the country rose 26.7% from April to 1.36 million mt, MPOB data showed. Buyers turned to Malaysian supplies to cover their requirements after a three week ban on exports by larger rival Indonesia in May.

Stocks at the end of the May fell 7.4% from the month before to 1.52 million mt, MPOB data showed, compared to trade expectations of a 9% fall to 1.49 million.

Jakarta set a maximum export tax and levy of $488/mt on crude palm oil effective June 10, down from $575/mt in March, local media reported citing trade authorities.

Indonesia, which accounts for one-third of the world's vegetable oil exports, had reopened exports at end-May but with overarching conditions on exporters to prioritize domestic needs at set prices to ease shortages and ensure a steady supply of essential cooking oil within the country.

"In July we are told that Indonesia will introduce the flush-out program, where sellers wanting to export more than the volume allocated to them will have to pay an additional levy of $200/mt," said Lingam Supramaniam, director with vegetable oil brokerage Pelindung Bestari at Port Klang, Malaysia.

The new tax regime combined with the flush-out tax will push the total duty to $688/mt for Indonesian crude palm oil exports.

Indonesia and Malaysia account for 85% of the world's palm oil supply.

Market update

Commodity market analysts termed the MPOB data "neutral" and with the possibility of near-term volatility and a dip in prices after that.

"The market will be rangebound between MR6,150-6,400/mt ($1,397.89-$1,454.71/mt) for the next couple of weeks and trend lower after that," Tajgir Rahman, head of trading and procurement at Dubai-based Savola Foods said.

August palm oil futures on the keenly-watched Bursa Malaysia Derivatives exchange (BMD) fell 4% on May 9 after Indonesia finalized plans to speed up exports with a new tax policy.

The August contract was trading marginally higher on the BMD at MR6,254/mt ($1,421.53) during the afternoon session post the MPOB data release on May 10.

"The resumption of Indonesian palm oil export supplies is going to put a cap on the Malaysian palm oil exports from the second half of June and the first-half June palm oil production numbers will be the key for the future course of price action in palm oil," Sunvin's Bagani said in a note May 10.