Malaysia’s palm oil production is on track to exceed 20 million metric tons this year for the first time, supported by more efficient harvesting, improved labour availability and output from maturing plantations, the industry regulator told Reuters.

Record production in the world’s second-largest palm oil exporting country is likely to lift inventories, which could weigh on benchmark Malaysian futures FCPO1!, already trading near a five-month low.

Malaysia is expected to produce between 20 million and 20.5 million tons this year, assuming favourable weather and continued harvesting efficiency, Ahmad Parveez Ghulam Kadir, director general at the Malaysian Palm Oil Board, said on Wednesday.

“Crossing the 20 million ton threshold would therefore represent not merely a statistical achievement, but a historic milestone reflecting both supportive market conditions and structural improvements in plantation productivity,” he said.

Malaysia’s palm oil stocks in November rose to a more than six-and-a-half-year high, as weaker exports coincided with the second-highest production ever recorded for the month, MPOB data showed earlier on Wednesday.

The rise in inventories reflects ongoing export headwinds, Ahmad Parveez said.

“Indonesia’s stronger price competitiveness, supported by lower export levies, has weighed on Malaysia’s shipments and contributed to higher inventory levels,” he added.

Indonesia has cut the export tax on crude palm oil shipments in December to $74 per ton, down from $124 in November.

Ahmad Parveez expects inventories to edge higher by the end of December though he anticipates export demand to improve with restocking ahead of Chinese New Year.

Palm oil imports by China, a key global buyer, typically rise ahead of the Chinese New Year as demand increases for snacks, confectionery, fried foods and bakery items.

“That said, the risk of inventories approaching or marginally exceeding 3 million tons cannot be entirely ruled out should export performance remain weak for longer than expected or if demand recovery is slower than seasonal norms,” Ahmad Parveez said.
Source: Reuters