Harvested oil palm fruit sits in a trailer at the Sime Darby palm oil plantation in Pulau Carey, Selangor, Malaysia, on Feb. 11, 2015. (Bloomberg Photo/Sanjit Das)

Palm Reserves in Indonesia Seen at Two-Year High as Output Jumps


APRIL 17, 2015

Palm oil stockpiles in Indonesia, the world’s top producer, probably increased in March to the highest in almost two years as output rose for a second month.

Inventories expanded 2 percent from a month earlier to 2.55 million metric tons, the biggest since May 2013, according to the median of six planter, refiner and analyst estimates compiled by Bloomberg. Production climbed 12 percent to 2.4 million tons, the highest since August, and exports were little changed at 1.8 million tons, the survey showed.

Increasing supply may help extend the 19 percent decline in futures in the past year. Output in Malaysia, the second-largest producer, rebounded last month from a seasonal low, rising the most in 18 years, data showed last week. Prices may drop to a six-year low in 2015 on rising production and if Indonesia fails to implement its biodiesel program, according to Dorab Mistry, director at Godrej International.

“We are at the start of a seasonal increase in production,” said Hariyanto Wijaya, an analyst at Mandiri Sekuritas in Jakarta. “Biodiesel is the key” to absorb the rising output, which may peak in August or September, he said.

Futures traded at 2,173 ringgit ($595) a ton on Bursa Malaysia Derivatives on Thursday after tumbling to 2,092 ringgit on April 10, the lowest since Dec. 1. Brent crude has plunged 43 percent in the past 12 months, reducing the appeal of biofuel. The Indonesian Palm Oil Association will release March exports data later this month. Changes for output and reserves are based on earlier surveys.

Good weather

The weather was seen as normal in March with ample rainfall ranging from 100 millimeters (3.94 inches) to 300 millimeters across Sumatra and 150 millimeters to 400 millimeters in Kalimantan, Hiro Chai, associate director at CIMB Futures, wrote in a report e-mailed on April 1.

There seem to be “decent” conditions for fruit growth across Indonesia, he said. Normal weather patterns may continue in April with rainfall from 150 to 300 millimeters, Chai wrote, citing forecasts from the country’s meteorology office.

Prices may retreat to 1,900 ringgit, a level last seen in March 2009, Mistry said in remarks prepared for a conference in Beijing on Monday. Futures will trade between 2,100 and 2,300 ringgit until May, he said, abandoning a March forecast for an advance to 2,500 ringgit. They may rally if Indonesia’s state-owned Pertamina announces a tender to buy the vegetable oil for the biodiesel mandate, he said.

Biofuel use

Indonesia has promoted biofuel use to absorb supplies and to cut carbon emissions. The country plans export levies to fund research, replanting and the biodiesel subsidy, which was raised in February to Rp 4,000 (31 cents) a liter from Rp 1,500. The mandate was also increased to 15 percent from 10 percent. The presidential decree may be issued this week.

While the levy, set at $50 a ton for crude palm and $30 for processed products, may hurt earnings for shippers in the short term, the plan may boost demand from the domestic biodiesel industry, according to Wijaya.

“This is short-term pain for medium-term gain,” Wijaya said by phone on April 14. The policy “will create quite a big demand from biodiesel, so in the medium-term it will be positive for the market, especially if Malaysia follows.”

Palm oil production in Malaysia jumped 33 percent last month, the most since March 1997, according to the Palm Oil Board. Stockpiles rose 7 percent to 1.87 million tons, the highest level since December.

Indonesia’s biodiesel use may reach 3 million kiloliters if the mandatory 15 percent blending starts in April, the Indonesia Biofuel Producers Association said last month. Consumption was 1.7 million kiloliters in 2014, the group estimated in February. The target last year was 3.3 million kiloliters, according to the palm oil association.


palm oil