Palm production slips amid fears that demand may exceed supply

Malaysian palm oil futures declined on Friday due to concerns that a rise in production could exceed demand because of the ongoing Middle East conflict, even though official data showed inventories fell to a 7-month low.

By midday, the benchmark palm oil contract on Bursa Derivatives exchange for June delivery was down 17 Ringgit or 0.37% at 4,626 Ringgit ($1,168.18).

This week, the contract has declined?3.37% and will be experiencing its first weekly decline in six weeks.

Malaysian palm oil stocks fell last month while production grew 7.21%, and exports soared 40.69%.

Paramalingam Supramaniam of brokerage Pelindung Bestari said that as we move into the peak production months, April, May and June, demand destruction caused by Middle East conflict and higher freight costs, will begin to reflect themselves in the April 1-10 export numbers.

"If exports do not keep pace with seasonal increases in production, then end stocks will rise again and cap any near-term improvement." "Exports must be robust, but given the current economic environment, this is going to be a challenge," he said.

Later in the day, cargo surveyors will release their estimates for Malaysian palm oil exports from April 1-10.

Dalian's palm oil contract, which is the most active contract in Dalian, increased by 1.12%. Chicago Board of Trade Soyoil Prices were up by 0.01%.

Palm oil follows?the price movement of rival edible oils as it competes for a market share on the global vegetable oils.

As tanker traffic in the Strait of Hormuz was largely frozen, oil prices rose due to renewed 'anxiety about Saudi Arabian supplies.

Palm oil is a better option as a biodiesel feedstock because crude oil futures are stronger.

(source: Reuters)