Malaysian palm oil production tops 20 million tons in first time.

The industry regulator said that Malaysian palm oil production will surpass 20 million metric tons for the first year, thanks to more efficient harvesting and improved labour availability, as well as output from "maturing plantations".

The record production of palm oil in Malaysia, the second largest exporter in the world, is expected to increase inventories. This could put pressure on Malaysian benchmark futures which are already trading at a low level for five months.

Malaysia will produce between 20 and 20.5 millions?tons of palm oil this year, provided the weather is good and harvesting continues to be efficient, Ahmad Parveez Ghulam Kadir said.

He said that "crossing the 20-million-ton threshold?would not only represent a statistical accomplishment, but also a historical milestone that reflects both market conditions supportive and structural improvements in plantation productivity."

MPOB data revealed earlier Wednesday that Malaysian palm oil stocks rose in November to a level not seen for more than six and a half years. Weaker exports were accompanied by the second highest production recorded ever.

Ahmad Parveez explained that the rise in inventories is a reflection of ongoing export headwinds.

He added that "Indonesia’s stronger price competition, supported by lower import levies has weighed down on Malaysia’s shipments, and contributed to higher inventories levels."

Indonesia reduced the export tax for crude palm oil in December from $124 per ton to $74 per tonne.

Ahmad Parveez anticipates that inventories will be slightly higher at the end of December, but he also expects export demand to increase with restocking before Chinese New Year.

China is a?key buyer of palm oil, and imports usually increase before the Chinese New?Year, as snack, confectionery, fried food, and bakery products are in high demand.

Ahmad Parveez stated that "that said, it cannot be completely ruled out the possibility of inventories approaching or marginally surpassing 3 million tons if export performance remains weaker than expected for a longer period than expected or demand recovery is slower seasonal norms", he said. Reporting by Ashley Tang & Rajendra Jadhav. (Editing by Joe Bavier, Mark Potter and Mark Potter.)

(source: Reuters)