Kuala Lampur: Malaysia's palm oil market is expected to see a seasonal rise in production and softer export demand in the coming months, with inventories likely to rebuild gradually despite near-term price support from energy-linked factors, analysts said Monday.
Malaysia's palm oil production is expected to continue its month-on-month upward trend heading into the peak production season, research house UOB Kay Hian said in a note.
The strong rebound in March is likely to give way to softer exports in April, as the absence of festive demand and weaker buying interest from key markets such as India weigh on shipments amid a sharp rise in crude palm oil (CPO) prices, it said.
"That said, inventory levels are expected to remain broadly flattish in April, as export volume should still be sufficient to offset the anticipated increase in production," it said, adding that stocks are likely to trend higher from May onwards as the seasonal production cycle gathers momentum.
Hong Leong Investment Bank Research said in a note that further inventory drawdown is likely limited, given the ongoing seasonal recovery in production since March, weaker festive-driven demand, and potential demand destruction at elevated price levels, particularly in price-sensitive markets such as India and Pakistan.
Meanwhile, MBSB Research warned that cost pressures may emerge in the second half from higher fertilizer and logistics costs, including urea-linked inputs and elevated diesel-driven freight and insurance expenses.
