Malaysia needs to raise bar on palm oil stocks

Malaysia's palm oil industry should raise its safety net to two million tonnes of stock a month since the current level of one million can easily jolt the market when output slides, an indusstry executive said on Friday Palm oil exports from Malaysia, the world's largest producer, often exceed a million tonnes a month. An additional 150,000 tonnes or so are required for domestic use. Yet when inventories cross the one million mark, the market shudders and palm oil prices take a beating.
"I wish the players in the palm oil industry would not allow the one-million tonne stock level to be the psychological bearish mark anymore," said Liana Low, chief executive of Bell Group, Malaysia's largest privately-run oil palm mill. "They should raise the bar to two million as the industry is structurally different today than three decades ago, when the one million barrier was set," she told Reuters.
Stocks are calculated at the end of each month by the government-run Malaysian Palm Oil Board, which adds leftover supplies from the preceding month to current month production. But Low said exporters could not take the figure as an absolute since the calculation did not factor in the time taken to process crude palm oil into products such as olefin and stern.
At least 90 percent of Malaysian palm oil exports consist of processed oil now, a reverse from the 1970s, when crude palm oil shipments used to dominate the industry.
"It takes 16 days to process the oil and make it ready for export, from the time it leaves the mill and goes to the refinery, enters the processing tanks, bulking installations and finally vessels," said Low.
"That means whatever official stock you have on hand needs to minus off those 16 days to give a true reflection of what can immediately be exported," she added. In this case, the official end-December stock of 1,487,387 tonnes had to be divided over 30 days and multiplied into 16 and subtracted from the total.
"This gives you an immediately useable stock of only 694,114 tonnes," she said. "And that's not the end of the story as you have to minus another 150,000 tonnes for domestic consumption."
"So the volume of oil really carried forward from December for exports in January is 544,144 tonnes."