Palm oil inventories in Indonesia and Malaysia are expected to climb above 8 million tonnes by year-end on the back of higher production and disappointing demand, an industry analyst said on Wednesday. Malaysia's year-end palm oil stocks are set to reach 3.3-3.5-million tonnes and Indonesia's are seen climbing above 5 million tonnes, Sathia Varqa of Singapore-based Palm Oil Analytics told an industry conference in China.
"Collectively we could see stocks of surpass 8.0 million tonnes in Malaysia and Indonesia," Varqa said. In 2017, Malaysia's year-end palm oil stocks stood at 2.73 million tonnes, while Indonesia had 4.02 million tonnes. Slowing demand and higher output have dragged down prices of palm oil this year.
The benchmark palm oil contract on the Bursa Malaysia Derivatives Exchange has lost more than 18 percent in 2018, adding to last year's deep losses as production climbs across Southeast Asia, which accounts for the bulk of global supply. Varqa estimated global palm oil output would climb to 65.7 million tonnes in 2018, compared with the 63.92 million tonnes produced a year ago. For 2019, he projected world palm oil output at 70.5 million tonnes.
"The main problem is that production of palm oil and soybeans has been very good in 2018 and is set to rise in 2019, but exports have been frustrated by rising trade-related issues, mainly on retaliatory tariffs on US beans from China," he said. "Also steep India import tariffs reduced palm trade from both Indonesia and Malaysia to India, thereby driving prices lower."
India, the world's top importer of the commodity, in March raised tax on inbound refined palm oil cargoes to 54 percent from 40 percent. However, low palm oil inventories in India and China are expected to boost demand in the fourth quarter. "China and India will continue to cover supplies despite depreciating currencies."
Benchmark Malaysian futures are expected to trade in a range of 1,900 ringgit ($453.46) to 1,970 ringgit through the end of December, Varqa said. They stood at around 1,975 ringgit on Wednesday. But prices are likely to begin recovering from January towards 2,150-2,250 ringgit a tonne when March and April contracts are traded, he added.