Malaysian palm oil production posted a surprise 2.17% month-on-month fall to 1.68 million mt in October, well ahead of the seasonal low output season over December-March, Malaysian Palm Oil Board data released Thursday showed.
In response, the front month CPO futures contract spiked MR45/mt day on day to MR2,890/mt or $679.04/mt Thursday.
The production decline was attributed to the El Nino weather event in Southeast Asia that emerged in late 2015 and persists in dampening palm production.
Market participants had been expecting palm oil production to fall from December to February or March next year, typically the low season for palm, but El Nino seems to have curtailed production early this year.
Although palm oil production dropped earlier in the season than expected, Malaysia's palm oil exports fell a less sharp 1.39% month on month to 1.43 million mt in October.
Demand from China fell to 187,204 mt in October from 197,555 mt in September after the Chinese government released strategic soybean oil stocks in the month, a market source said.
Chinese demand is expected to rebound once purchasing begins for Lunar New Year festivities early next year.
Bangladesh, India and Pakistan also imported less Malaysia palm oil in October than in September.
PME exports from Malaysia also fell, to 77 mt on October from 443 mt in September, as the weather turned colder in Europe.
Lower palm oil exports resulted in an increase in Malaysia's palm inventories, which rose 1.74% month on month to 1.57 million mt in October. The total was still the third-lowest in 2016 to date, creating some concern in the market about palm oil inventories falling in the months ahead.
