Palm Oil "Manageable" Level: Malaysia

Published: 26 February, 2009

PALM oil has traded at a “manageable” level since Malaysia, the world’s second-biggest producer, introduced measures to cut output last year, the country’s commodities minister said. Prices in 2009 of between RM1,400 (US$381) and RM1,900 a metric ton would be enough to sustain export income from the crop, Datuk Peter Chin said in a speech in Kuala Lumpur.

That compares to today’s high of RM1,930. Palm oil, Malaysia biggest agricultural export, has gained about 19 per cent since the country allied with Indonesia in November to reduce production of the edible oil following a price slump.

Malaysia needs higher income from overseas sales of palm oil as it attempts to avoid a recession. “If we are able to continue this sort of range this year, despite whatever global recession there may be, the palm oil industry will be able to provide Malaysia with the export earnings that it needs,” Chin said.

Palm oil for May delivery on the Malaysia Derivatives Exchange traded at RM1,906 a ton at 11:44 am, gaining for a second day. The commodity slumped 70 per cent between touching a record RM4,486 last March and the year’s low on October 28.

The output-cut plan came the next month, on November 6. Malaysia and Indonesia, the world’s biggest producer of palm oil, agreed in November to replant old estates, cutting annual output by as much as 800,000 metric tons.

The two countries account for about 90 per cent of global output. The Indonesian Palm Oil Association expects 2009 output of about 20 million tons, according to a January 21 forecast. Malaysian production this year may be “static or lower” than last year’s 17.5 million tons, Chin said yesterday.

Chin said today he expects Malaysia’s palm oil stockpiles to fall this year. The country’s stockpiles dropped in January to 1.83 million tons, the lowest level in nine months. - Bloomberg