Strong overseas demand for palm oil ahead of the upcoming Ramadan month will keep prices on Bursa Derivatives buoyant, while traders gauge the potential impact of erratic weather pattern on output from local plantations.
“I think the market is taking a breather following recent price surge,” said a palm oil trader at local futures brokerage.
“Demand is still strong, and right now there is a lot of speculation about how La Nina will disrupt production in the coming months,” he added.
In the market yesterday, the benchmark crude palm oil (CPO) futures contract fell RM21 to RM2,498 a tonne.
The contract hit a 10-week high of RM2,519 a tonne on Thursday, a 10% rise from an eight-month low of RM2,270 a tonne registered on July 7.
On Thursday, Reuters reported that Pakistan’s palm oil imports from Malaysia may top 250,000 tonnes this month as the country increased its stockpile ahead of the Ramadan fasting month that will start in the second week of August.
If the figure is achieved, then that would be a record month for shipment to Pakistan.
Cargo surveyor Societe Generale de Surveillance estimated palm oil shipment from Malaysia to Pakistan from July 1 to July 20 had reached 174,416 tonnes, compared with 148,276 tonnes tracked by Malaysian Palm Oil Board for the whole of June.
That makes Pakistan the second largest buyer of local palm oil in June, behind China’s import of 337,589 tonnes.
The Reuters story, quoting a top industry official in Pakistan said, imports for August were forecast at 150,000 tonnes.
The official said the surge in July was to make up for the low shipment of in June.
Pakistan is the world fourth largest importer of vegetable oils, and purchased an estimated US$1.3bil of palm oil last year.
Malaysia is the second largest exporters of palm oil in the world after Indonesia.
Analysts said the La Nina weather pattern, which usually brings heavier rain than usual in the South-East Asian region in the second half of the year, may cause oil palm fruits to yield less oil and also raise the threat of flooding at estates in Indonesia and Malaysia during the seasonal production peak months.
At the same time, it would increase the chance of dry-weather spell to hit the United States at the time when rain is vital for soybean crop. The United States is the world’s largest exporter of soybeans, which are then crushed to make soybean oil.
The two edible oils are often substituted, but soybean oil is more expensive than palm oil. Soybean oil’s premium over palm oil widened to US$94.86 a tonne yesterday from US$90.21 on Thursday, according to Bloomberg data.
Meanwhile, a Goldman Sach report earlier this week predicted that CPO prices may gained 15% to 20% by the end of this year as local production was impacted by drier than usual weather early this year.
The dry weather pattern, known as El Nino, may have delayed the peak production period of local palm oil estates that usually starts in the middle of the year to August.
Source: The Star by Izwan Idris