Sarawak palm oil inventories strain storage capacity amid Malaysia's supply glut

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Sarawak palm oil storage issues

Highlights

Sarawak palm oil storage is nearing capacity after a greater-than-expected production surge and high transportation costs slowed exports through Bintulu Port.
Malaysia's palm oil inventories hit a record 3.51 million tonnes in September, weighing on futures, which fell 2.2% on Tuesday to a four-month low.
Government and industry representatives discussed managing the stock surplus through export options, but delays in finding a solution could disrupt processing and smallholders' sales.

This article was translated from the original. Read the original version by our correspondent here.

Production surge puts pressure on Sarawak's export hub

As reported by The Edge Malaysia, storage tanks in Sarawak are nearing capacity after a stronger-than-expected harvest and high transportation costs slowed outbound shipments. The state accounts for more than one-fifth of Malaysia's palm oil production, and most of its exports move through Bintulu Port, which handles more than 90% of Sarawak's exports.

The concentration of flows through one major exit point has worsened congestion as production surges. Several companies have also brought additional mills online, while authorities are exploring the use of other ports in Sarawak to ease logistical pressure, according to a senior planter.

Nationally, palm oil inventories in Malaysia, the world's second-largest producer, hit a record 3.51 million tonnes in September, as production also reached an all-time high. This came ahead of the seasonal peak that typically arrives in October, underscoring the growing surplus across the industry supply chain.

Price pressure and supply chain risks

The supply glut has already weighed on prices. Benchmark palm oil futures in Kuala Lumpur fell 2.2% on Tuesday, their steepest decline in more than a month, and remain near the four-month low reached in early October.

The discount on palm oil relative to competing vegetable oils has widened, helping to boost exports this month. However, large inventories continue to limit any sustained price recovery.

Government and industry officials met last week to discuss ways to tackle the stockpile, including measures to move excess supply to overseas markets, according to SD Guthrie Bhd group president and chief executive officer Mohd Haris Mohd Arshad. Plantation and Commodities Minister Datuk Seri Dr Noraini Ahmad said the government was reviewing proposals from the industry and that they remained under consideration and required further discussion.

A prolonged shortage of storage space could eventually force mills to slow processing, disrupting the flow of fresh fruit bunches from plantations and smallholders at the peak of the harvesting season. Mohd Haris said the government needed to act quickly so the industry had time to plan and prepare, stressing that the last thing anyone wanted was for farmers to be unable to sell their produce.

In our earlier report on the decline in Malaysia's crude palm oil reference price for November, we explained that the reference price was set lower than in October, while the export duty remained at the maximum rate of 10%. This means export costs remain stable for exporters despite the lower reference price, affecting competitiveness and shipment flows as the market monitors the monthly changes.

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