Palm oil shipments by Indonesia, the world’s largest producer, probably advanced to the highest level in nine months in November.

Sales of palm and kernel oils gained 2.2 percent to 1.9 million tons from October, the median of estimates from five planters, traders and refiners compiled by Bloomberg showed. That’s the highest since February, data from the Indonesian Palm Oil Association show. Production remained at 2.4 million tons for a third month, according to four respondents. That brought output to 24.25 million tons in the first 11 months.

Prices of the most consumed cooking oil reached a 14-month high in Kuala Lumpur in November and are heading for the first annual gain in three years on speculation output in Indonesia will decline for the first time since 1998. Production may drop 500,000 tons to 27.5 million tons this year, Dorab Mistry, director at Godrej International Ltd., said Nov. 29.

“Producers tried to boost exports after prices gained and shipments will remain high in December” as companies must meet contracts, said Derom Bangun, chairman of the Indonesian Palm Oil Board. He expects output of 2.2 million tons in December. That brings the annual total to 26.45 million tons when added to the numbers in the Bloomberg surveys.

Futures advanced 5.1 percent this year to 2,562 ringgit ($791) a ton on Bursa Malaysia Derivatives on Dec. 13. While the association doesn’t publish inventory and output data, it may release November export figures this week. The changes in output and reserves are derived from earlier surveys.

Production Drop

The figure for output in 2013 compares with Bangun’s Nov. 29 estimate of 26.2 million tons. Production will be 26.5 million tons this year from 27 million tons in 2012, according to the median of five grower estimates compiled by Bloomberg last month. The USDA predicts a crop of 28.5 million tons.

Reserves probably rose 2.9 percent to 2.1 million tons in November from a month earlier and may decline to 2 million tons by the end of the year, according to estimates from four producers and refiners.

Supplies will shrink as the country increases the use of palm-based biodiesel, said Sahat Sinaga,executive director at the Indonesian Vegetable Oil Industry Association, who forecasts that exports and reserves may drop to 1.7 million tons and 1.5 million tons in December.

Indonesia raised in September the amount of palm-derived biodiesel that producers must blend into subsidized fuel to 10 percent from 7.5 percent. The requirement will be extended to non-subsidized fuel and industrial users in January and power plants will be obliged to use supply with a 20 percent blend.

Biodiesel Demand

A third of output may be used in fuel in one or two years if the government is consistent in applying the policy, Mahendra Siregar, head of the Investment Coordinating Board, said last month. About 3 percent of the crop is used as fuel now, according to the Indonesian Biofuels Producers Association.

Global biofuel demand may expand on larger mandates from Southeast Asia to South America and boost vegetable oil prices, according to Mistry, who expects palm oil production in Indonesia to rebound to 30.5 million tons in 2014.

Output will recover next year to 29.5 million tons as yields increase and new areas mature, Bangun said last month. Exports will be about 18 million tons in 2014 and may drop significantly in the next few years as more supplies are used for biodiesel output.

To contact the reporters on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net;

Eko Listiyorini in Jakarta at elistiyorini@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Source : Bloomberg