The benchmark March contract on the Bursa Malaysia Derivatives exchange ended 0.9% lower at MYR3,155 a metric ton after moving in a MYR3,139-MYR3,178 range. Palm oil is headed for a 20% drop this year on concerns over global economic growth and commodity demand.
“Based on technicals, BMD Crude Palm Oil (CPO) is still biased to the upside in the first quarter next year and as output is likely to stay weak due to seasonal factors,” a commodities broker in Kuala Lumpur said.
Traders are keeping an eye on weather developments in the major oil palm growing states of Johor, Pahang and Sabah, which account for two-thirds of Malaysia’s total production and December export data by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd, due Dec. 31 and Jan. 3, respectively.
Planters said December CPO output will likely fall 5%-10% from November’s level of 1.63 million tons, keeping month-end stocks tight and supporting prices.
However, palm oil may pare gains after the first quarter next year, when the lean production cycle tapers off and CPO supplies in Southeast Asia rise on favorable weather conditions, improving yields and as more trees in Indonesia mature, Kuala Lumpur-based OSK Investment Bank analyst Alvin Tai said in a note.
“New plantings by big players in Indonesia have reached maturity this year, which helped fuel production growth. Growth in these areas will continue to rise in the next 4-5 years,” Tai said.
“The Southern Oscillation Index points to a mild La Nina, which is also favourable for palm oil production,” Tai said.
In the cash market, refined palm olein for January was offered $17,50 lower at $1,070/ton while cash CPO for prompt shipment was offered MYR30 lower at MYR3,170/ton.
Open interest on the BMD was 113,774 lots, versus 111,292 lots Wednesday. One lot is equivalent to 25 tons.
A total of 16,155 lots of CPO were traded versus 27,216 lots Wednesday.