Malaysian palm oil futures edged down on Wednesday to a near one-week low as concerns over waning demand from key customers turned investors wary, although official data showing smaller stockpiles in the No 2 grower provided some support. Industry regulator the Malaysian Palm Oil Board reported that palm inventories in Malaysia tightened to their lowest in six months at 1.77 million tonnes, after monsoon flooding made worse the impact of a seasonal decline in yields.
But while crude palm oil production last month was at its weakest since February 2011, analysts warn a recovery in yields at the end of the quarter may cause stocks to build up again. "We expect palm oil output to trend higher from March onwards as the impact of flooding subsides. As such, higher CPO demand will be critical to keep inventory manageable," said CIMB analyst Ivy Ng in Kuala Lumpur.
The benchmark April contract fell 1 percent to 2,277 ringgit ($633) per tonne on Wednesday, after briefly touching 2,270 ringgit, its lowest since February 5. Total traded volume stood at 55,852 lots of 25 tonnes, higher than the usual 35,000 lots. Demand for palm has been sluggish in 2015, due to abundant supplies of rival oilseeds as well as a rout in crude prices which dented biodiesel exports. Data from cargo surveyor Intertek Testing Services showed Malaysian shipments were 16 percent weaker in February 1-10.
Malaysian producers of palm-based biodiesel are now seeking new incentives from their government after Indonesian makers were promised the subsidy hike. Representatives of Malaysia's biodiesel industry will meet commodity ministry officials on Thursday to discuss policies to help the ailing sector. The US soyoil contract for March fell 0.2 percent in late Asian trade, while the most active May soybean oil contract on the Dalian Commodity Exchange lost 0.1 percent.