Malaysian palm oil stock down, demand up

Malaysian palm oil stock down, demand up

KUALA LUMPUR (Reuters): Malaysia could face difficulty in meeting demand for its palm oil after the first quarter of 1998 due to falling production and stock levels, industry sources and traders said yesterday.

Palm oil exports from Malaysia have picked up following a sharp fall in the ringgit against the dollar, which has made the commodity attractively priced for overseas buyers, and a ban in palm oil exports by Indonesia.

"Stocks are still available. But once the stock evaporates, then the problem will start, going into the second quarter if the (Indonesian) ban continues," said an industry source.

"With the ban, definitely more demand is going to come into the Malaysian palm oil market," he said.

Indonesia has banned the export of crude palm oil indefinitely to try to stabilize domestic supplies.

Minister of Industry and Trade Tunky Ariwibowo said the current ban, from January to March, was not long enough to stabilize domestic cooking oil price.

Said a trader: "Stocks have been coming down gradually since the export ban started and we expect stocks to be less than half a million tonnes by end-March."

Malaysia's palm oil stocks at the end of last year stood at 962,490 tonnes.

Palm oil output in December was 623,759 tonnes while exports totaled 644,258 tonnes.

Malaysian palm oil production is forecast to drop to 8.5-8.6 million tonnes in 1998 from an estimated 9.0-9.1 million tonnes last year.

The U.S. agricultural attache said recently that with both world major palm oil producers, Malaysia and Indonesia facing a significant decline in output for the rest of the 1998, stocks are expected to stagnate around 500,000 tonnes for the rest of the year.

Industry sources said a continuing Indonesian export ban may result in high Malaysian palm prices which could risk palm oil buyers switching to other vegetable oils, particularly soyoil.

"It all depends on how long the ban is. With the civil unrest in Indonesia, I don't think the ban will be lifted so soon. Then we will see a tight supply," said an industry source based in Singapore.

"Then buyers could divert their buying to other soft oils like soyoil," the source said.

Malaysian crude palm oil are quoting around 2,310 ringgit ($658) a ton for spot month, compared with 26.46 U.S. cents per lb quoted for soyoil on the Chicago Board of Trade.