KUALA LUMPUR: Malaysian palm oil stocks fell for the first time in December since June 2015 as production in the world's second-largest grower declined due to the El Nino weather pattern, industry regulator data released on Monday showed.
Declining stockpiles could further boost benchmark palm oil futures, which rose 0.25 percent on Monday to trade around 2,441 ringgit ($554.77) per tonne and headed for their first gain in three sessions on improved January export data.
Palm fell to a three-week low of 2,405 ringgit last Thursday due to weak export demand and a narrowing spread between the tropical oil and soyoil.
It declined 2.5 percent last week, its biggest since the week ended Oct. 9, on slow export demand.
Palm oil inventories in Malaysia dropped 9.5 percent on month to 2.6 million tonnes at the end of December, data released by the Malaysian Palm Oil Board (MPOB) showed, lower than a Reuters poll forecast of 6.1 percent fall to 2.73 million tonnes.
Production fell 15.4 percent from November to 1.4 million tonnes, its lowest level since February 2015, as the dry weather effects of the El Nino finally kicked in.
"Production is dropping quite rapidly, in line with our first-quarter expectations, as a result of the dry weather," said Ben Santoso, an analyst with DBS Bank in Singapore, referring to the El Nino dryness. "That said, (the El Nino dryness) has already peaked, so we don't expect as dire a situation as before, but there will be some dryness in Malaysia and Indonesia. There are also expectations of another bout of forest fires again this year."
The El Nino phenomenon, which brings in dry weather across Southeast Asia, is set to be the worst on record since 1997 this year, according to data from a US weather agency.
Malaysia's exports in December fell by 1.1 percent on month to 1.5 million tonnes, MPOB data showed, softer than a forecast of 6.6 percent decline in a Reuters poll.
This however was likely due to a backlog in export sales, said a trader with a palm oil brokerage firm in Kuala Lumpur, adding he was yet to see an improvement in market demand.
"While export data looks supportive compared to the general market's perception, personally I am not bullish on the figure," he said.
"Buyers are still not paying and sales are still slow. (December's export numbers) are from what was previously contracted. It is not fresh demand.
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