Palm Oil Ends Higher After Tumbling to March 2009 Low

KUALA LUMPUR: Malaysian palm oil futures ended higher on Monday, snapping an eight-day losing streak, as short-covering reversed losses from the morning session and helped the tropical oil stay above 2,000 ringgit.

Palm had tumbled to a March 2009 low of 1,954 ringgit inearly trade as financing troubles in China, coupled withlacklustre export demand, triggered speculative selling.

A bout of covering in late trading, however, helped pricesrecover some losses. “There was a lot of short-covering due to an oversoldsituation in the market in the last two days. A rebound in theDalian palm oil market also prompted the short-covering,” said atrader with a local commodities brokerage in Kuala Lumpur.

“But there’s no fundamental reason for the rebound. All thebearish news — the higher production, low exports — is alreadywell absorbed.”

The benchmark November contract on the BursaMalaysia Derivatives Exchange inched up 1.6 percent to 2,027ringgit ($641) per tonne by Monday’s close, pulling away fromthe intraday low of 1,954 ringgit.

Total traded volume stood at 25,250 lots of 25 tonnes, belowthe average 35,000 lots.

Technicals showed palm oil may fall further into a range of1,950-1,968 ringgit per tonne, driven by a powerful wave three,Reuters market analyst Wang Tao said.

Fears that global demand will be overwhelmed by a bumpersupply of edible oils this year also pressured the market.

“The main bearish factors are the large crop prospects forsoybeans in the U.S., rapeseed in Europe and sunflower seeds inUkraine and Russia. At the same time, palm oil is heading intoits peak production season,” CIMB Research analyst Ivy Ng said.

“On top of this, some buyers from China, one of the largestimporters of palm oil, are having difficulties raisingfinancing, as banks clamp down on funding for commodities,following the Qingdao port investigation.”

Commodities are commonly used for financing in China, whereinvestors borrow against a product with the aim of investing themoney in high-return areas such as real estate.

Traders said the worries about a Chinese crackdown oncommodity financing began a few months ago, but had worsened inthe past week with investors trying to get rid of excess palmoil stocks that have arrived at ports.

“People have overbought the oil and they don’t know where todump it. They have to dispose of it – the selling pressure ispushing prices of palm lower,” the Kuala Lumpur trader said.

Sluggish demand for palm oil products this month alsoweighed on the market. Cargo surveyor Intertek Testing Servicessaid exports of Malaysian palm oil from Aug. 1-25 fell 15.3percent compared to the same period in July.

Another cargo surveyor, Societe Generale de Surveillance,reported that exports for the same period fell 11.3 percent.

Malaysian palm output, however, is seen picking up pace inAugust. The Malaysian Palm Oil Association, a group of growers,estimates that production rose 15.2 percent from Aug. 1-20.

In other markets, crude oil edged higher above $102 a barrelon Monday with support from geopolitical tensions in Ukraine andLibya, although ample supply limited the rebound from lastweek’s 14-month low.

In competing vegetable oil markets, the U.S. soyoil contractfor December gained 1.5 percent in late Asian trade,while the most-active September soybean oil contract onthe Dalian Commodities Exchange fell 0.4 percent.

Palm, soy and crude oil prices at 1052 GMT

Contract Month Last Change Low High Volume
MY PALM OIL SEP4 2050 +28.00 1979 2050 1970
MY PALM OIL OCT4 2030 +37.00 1951 2046 7537
MY PALM OIL NOV4 2027 +31.00 1954 2045 29002
CHINA PALM OLEIN JAN5 5174 -84.00 5104 5216 1021220
CHINA SOYOIL JAN5 6004 -24.00 5896 6012 651006
CBOT SOY OIL DEC4 33.09 +0.49 32.45 33.13 10792
NYMEX CRUDE OCT4 93.81 +0.16 93.28 93.89 9313

Palm oil prices in Malaysian ringgit per tonne

CBOT soy oil in U.S. cents per pound

Dalian soy oil and RBD palm olein in Chinese yuan per tonne

Crude in U.S. dollars per barrel

($1 = 3.161 Malaysian ringgit) ($1 = 6.1550 Chinese yuan) ($1 = 60.54 Indian rupee) – Reuters

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