Jun 7 2010 8:55AM
KUALA LUMPUR (Dow Jones)--Malaysia's palm oil inventory levels are likely to rise in the second half of the year as output in the second-largest palm oil producer in the world increases and major importers opt for soyoil due to a narrow spread to palm, affecting export growth, according to industry analyst James Fry.
"There is no reason to doubt (the rise in stocks) especially since the Ramadan boost to exports ends relatively soon and China and India are favoring soyoil right now," Fry, who is also chairman at London-based agribusiness consultancy firm LMC International Ltd., told Dow Jones Newswires via email over the weekend.
He also said CPO production in Malaysia is likely to rise from the 2009 output level of 17.6 million metric tons as replanting activities in Malaysia remain slow while underlying growth in mature areas in the country may boost supplies.
Rising stocks and expectations for a rise in Malaysia's 2010 palm oil output could place downward pressure to CPO prices on the Bursa Malaysia Derivatives. The benchmark August contract was trading MYR29 lower at MYR2,445/ton at 0251 GMT.
Palm prices have declined 8.8% since the beginning of the year as palm's wide discount to soyoil disappeared, steering buyers to cheaper soyoil.
CPO prices may remain under downward pressure even as soyoil prices remain low as a record soybean harvest from South America boosts availability.
"Also, the El Nino problems mentioned earlier this year seem to have been overstated," Fry said.
Earlier this year, industry analysts and growers said Malaysia may fall short of the 2010 output target of 18.1 million ton
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