Palm oil exports from Malaysia, the world’s biggest producer after Indonesia, slumped the most in seven years in January as a plunge in energy prices and record global oilseed supply cut demand.
Sales decreased 22 percent to 1.18 million metric tons from a month earlier, the Malaysia Palm Oil Board said in Kuala Lumpur on Tuesday. That’s the biggest drop since January 2008 and the least shipped since February 2011, MPOB data show. The median estimate in a Bloomberg survey published Feb. 6 was for a 15 percent decline to 1.29 million tons. Imports fell 0.5 percent to 89,908 tons, according to board data.
Palm oil, used in food and fuel, lost 12 percent in the past year as a plunge in petroleum costs reduced its allure as a biodiesel feedstock and global soybean crops headed for an all-time high. Soybean oil fell to a six-year low last month, increasing its attraction as an alternative. Demand may shift to soybean oil, DBS Bank Ltd. wrote in a report dated Jan. 27.
“Exports disappointed significantly on the downside and that says to me that on the demand side people are struggling with paying palm oil prices at these levels,” Wayne Gordon, a Singapore-based commodities analyst at UBS Group AG, said by phone Feb. 10. “There’s a bit of an arm wrestle with soyoil. Palm oil price has to decline to buy demand.”
Futures fell 0.7 percent to close at 2,300 ringgit ($642) a ton on Bursa Malaysia Derivatives in Kuala Lumpur. Soybean oil fell to 29.32 cents a pound on Jan. 29, the lowest since December 2008 and has narrowed it’s premium over palm to about $56 a ton from an average of $155 in the past five years.
Data from surveyor Intertek show exports may decline further this month. Shipments dropped 16 percent to 298,910 tons in the first 10 days of February from the same period a month earlier, the company said Feb. 10.
Rising U.S. crude oil supplies contributed to a global glut that drove prices almost 50 percent lower last year. That’s removed the biodiesel portion of demand for palm oil, said Gnanasekar Thiagarajan, head of trading at Kaleesuwari Intercontinental Singapore Pte.
Production tumbled 15 percent to 1.16 million tons, the lowest level since February 2011, and reserves fell 12 percent to 1.77 million tons, palm oil board data show. That compares with estimates of 1.2 million tons for production and 1.75 million tons for stockpiles in the Bloomberg survey.
Output contracted for the fifth straight month as floods from late December through early January combined with the impact of dry weather in early 2014 to worsen the usual drop in production at this time of year, according to Michael Greenall, an analyst at BNP Paribas SA in Kuala Lumpur. Output is typically lowest in January and February each year.
The year-end monsoon that hit the east coast of Peninsular Malaysia resulted in the worst floods since 1972, according to Maybank Investment Bank Bhd. While some damage from the floods may be seen for another two to three months, production will soon start its up cycle, said Gordon. Concerns over production are short-term as Indonesian output may accelerate, he said.
Indonesia may produce 33 million tons in 2014-2015, according to a unit of the U.S. Department of Agriculture. Output in the previous season was 30.5 million tons, the Foreign Agricultural Service said in a report dated Jan. 28.
“Stocks will start to build, particularly if we don’t see some recovery on the demand side,” said Gordon. “I’d be a seller of palm oil at these levels.”
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