Palm oil prices rise on expectations of lower production, short covering

The market was supported by expectations of a weaker production, and the short-covering activities. By midday, the benchmark contract for March palm oil delivery at the 'Bursa Malaysia Derivatives Exchange' had gained 25 ringgit (0.62%) to $4,072 ringgit (1,005.18) per metric ton. It ended a winning streak of four sessions on Monday.

According to Paramalingam Supramaniam of Selangor brokerage Pelindung Bestari, the market rebounded on the signs that December production could be lower due to the expected rains in East Malaysia and specifically the state of Sarawak.

The Malaysian Meteorological Department said on Monday that a surge of monsoon rains from January 1 to 5, could bring heavy rainfall in Sarawak as well as strong wind and rough seas along the South China Sea.

Supramaniam stated that "we are also witnessing short-covering activity today in advance of the holidays."

Supramaniam, however, said that the record soybean crop in South America, the strength of the Ringgit, and the tapering in demand will limit gains. Dalian's palm oil contract, which is the most active contract in Dalian, rose by 0.84% while Dalian's soyoil contract grew by 0.33%. Chicago Board of Trade soyoil prices were up by 0.24%.

Palm oil follows the price movement of rival edible oils as it competes to gain a share in the global vegetable oils market. After rising by more than 2% the previous session, oil prices fell, partly due to spillovers from a decline in precious metals.

Weaker crude futures make palm a less appealing option as a biodiesel source. The palm currency, the ringgit, has strengthened by 0.17% in relation to the dollar. This makes the commodity slightly less affordable for buyers who hold foreign currencies.

(source: Reuters)