MALAYSIA’S palm oil stocks are poised to drop further this month after hitting a six-month low in January as heavy rains and floods continue to dampen output.

Concerns over low yields after massive floods swamped key Malaysian oil palm growing areas in end January have triggered a rush for the vegetable oil used for cooking, as countries struggle to keep food prices low and ward off public unhappiness with inflation.

Traders said this month’s rush for palm oil was in part due to some restocking activity by China after the Lunar New Year break and the resulting drawdown in stocks will further lift palm oil futures, currently trading at a three-year high.

“I won’t be surprised if the key RM4,000 level gets breached soon,” said a trader with a foreign commodities brokerage.

“Stocks are pretty tight and export demand will become much better.”

The Malaysian Palm Oil Board (MPOB) said yesterday that January stocks in the world’s No. 2 producer of the vegetable oil fell 12.2 per cent to 1.42 million tonnes from December, worse than forecasts for a decline of 10.2 per cent in a Reuters survey.

Palm oil production in the country dropped 14.2 per cent to 1.06 million tonnes, as heavy rains and floods in key oil palm growing areas stalled harvesting and cut off estate roads.

“Palm oil production is expected to seasonally fall further in February 2011, but to recover thereafter,” Credit Suisse analyst Tan Ting Min said in a note issued after the MPOB data release.

“The market is closely watching the weather in South America and the US planting intentions report.”

But in the immediate term planters are concerned that prolonged exposure to moisture could turn the fruits rotten, hurting yields in the next two to three months.

January exports stood at 1.21 million tonnes, much higher than production, the MPOB said, although traders and analysts are expecting a much stronger February shipment data as emerging market economies scramble to secure supplies to avoid further price rises in cooking oil.

Reinforcing the trend, cargo surveyor Intertek Testing Services reported a 45.7 per cent jump in Malaysian palm oil exports for February 1-10 versus the same period a month ago.

Another surveyor, Societe Generale de Surveillance, pegged the increase at 28.5 per cent.

Thailand, usually self-sufficient in palm oil, announced plans last week to buy 120,000 tonnes of crude palm oil from Malaysia or Indonesia, the top two producers, to address a cooking oil shortage.

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The move came as Malaysia faced its worst floods in four years, prompting traders to speculate that orders may shift to Indonesia, which has not been so badly affected. – Reuters