KUALA LUMPUR, March 7 — Palm oil inventories in Malaysia probably fell to an 11-month low in February as a dry spell triggered by the strongest El Nino in almost two decades hurt the crop in the world’s second-largest producer.

Stockpiles slid 8.7 per cent to 2.11 million metric tonnes from a month earlier, the smallest since March 2015, according to the median of 8 estimates in a Bloomberg survey of planters, traders and analysts. Output declined 3.5 per cent to 1.09 million tonnes, falling for a fourth month to the lowest since January 2011. Exports fell 14 per cent to 1.1 million tonnes, the survey showed. The Malaysian Palm Oil Board will release official data by March 10.

Inventories are set to shrink further as the impact of the El Nino exacerbates the decline in production, boosting prices, Singapore-based commodity trader Olam International Ltd said last week. Futures surged to a 21-month high in February and have since lost some steam as a stronger ringgit curbs demand from buyers.

“Based on historical trends, demand should be soft in the short term,” said Voon Yee Ping, an analyst at Kenanga Investment Bank Bhd “But production should be soft toward April and stockpiles should continue to decline in the next few months.”

Supply squeeze

Futures for May delivery on Bursa Malaysia Derivatives closed at RM2,507 a tonne on Friday, down 5.3 per cent from RM2,648 on February 15, the highest since April 2014.

Olam’s Chief Executive Officer Sunny Verghese said on February 29 that about 1.5 million to 2 million tonnes of palm oil production will be lost to El Nino-induced dry weather. Malaysian plantation consultant Ganling Sdn warns that the supply disruptions are “far from over,” with futures seen trading between RM2,300-2,800 in 2016.

“Sabah planters foresee output to be lower again if dryness continues in March,” Hiro Chai, associate director at CIMB Futures Sdn bhd, said referring to Malaysia’s top palm-growing state. “If fruits are still dry in March, lower oil extraction will be seen.”

Waning demand from top customers amid the ringgit’s rally may pose headwinds to further price increases, according to Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari. A bumper harvest of soybeans from South America will also pressure prices, he said.

Imports probably jumped 25 per cent to 50,000 tonnes in February, according to the survey. Malaysia said last month it scrapped the temporary curbs on imports imposed in October. Domestic consumption ranged between 210,000 tonnes and 240,000 tonnes, the survey showed. — Bloomberg