Palm oil edges up on demand view, set for weekly gain
By Shoaib-ur-Rehman Siddiqui
KUALA LUMPUR, 19 October 2012: Malaysian palm oil futures rose on Friday, with market players confident of a recovery in demand thanks to strong Malaysian exports in the first half of the month and a major festival next month.
Friday’s light trade was enough to put palm oil on track for a second weekly gain, buoyed by expectations of stronger demand that could ease record stocks.
“There are more purchases from India and China – India especially – because Deepavali is coming soon.
They need to stock up more on palm oil,” said Malaysia’s Public Investment Bank analyst Chong Hoe Leong, referring to the Hindu festival of lights set for Nov. 13.
“The current crude palm oil price is quite attractive for purchase because it’s at the low base,” he said, but warned that inventory levels are expected to stay consistently high for the remainder of the year.
By the midday break the benchmark January contract on the Bursa Malaysia Derivatives Exchange rose 0.7 percent to 2,514 ringgit ($825) per tonne. Prices have lost one-fifth so far since the start of the year.
Total traded volumes stood at 6,374 lots of 25 tonnes each, much thinner than the usual 12,500 lots as investors stayed on the sidelines ahead of the weekend.
Despite hopes for an improved exports trend, analysts say inventories, which hit a record high in September, remain worrying as palm oil production shows no signs of slowing, and Malaysia struggles to push out shipments quicker amid weaker global economic growth.
“For next year, it is a bit challenging for palm oil because we can see a slowdown in market activity especially in the major consuming countries,” Chong said.
“That will be the major concern for the palm oil market, despite Malaysia recently imposing a lower tax structure starting from next year,” he added, referring to the tax cut from the current level of 23 percent of the export price per tonne.
Brent blend crude oil, an important indicator for the palm oil biofuel market, held above $112 a barrel on Friday, but remained on track for its third weekly fall in five weeks as supply concerns diminished with the imminent restart of Britain’s largest oilfield.
In other vegetable oil markets, US soyoil for December delivery fell 0.8 percent in early Asian trade.
The most-active May 2013 soybean oil contract on the Dalian Commodity Exchange were up 0.2 percent by the midday break.