Palm oil prices hit their highest in a month after double
dose of bullish Malaysian data added to a boost to prices from rising crude oil
prices, and the boost to the oilseeds complex from weather threats to South
America's soybean crop.
Palm oil futures for April delivery gained 1.5% to 2,616
ringgit a tonne in late deals in Kuala Lumpur, the highest price for a
benchmark contract since the first week of January.
Prices of the vegetable oil, set for their fourth successive
positive close, had already been on the rebound thanks to threats to the crop
of soybeans, the source of rival vegetable oil soyoil, in South America.
"Brazil is expected to experience an unusual hot and
dry weather this month while heavy rain across Argentina may affect the soybean
production," said Chee Tat, analyst at Singapore-based broker Phillip
"As such, it may boost the demand for palm oil as a
cheaper alternative for food and biodiesel uses, resulting in higher palm oil
Higher crude oil costs have also boosted prospects for
prices of palm oil, a major feedstock indeed for making biodiesel, and with
northern hemisphere demand potentially to pick up soon.
Palm oil has a higher freezing point than soyoil, making it
unsuitable for making biodiesel for use in cold temperatures.
"Benchmark West Texas Intermediate crude is currently
trading near the $100-per-barrel price level," Mr Chee said.
"High crude oil cost will hence provide more incentives
for a switch to cost-efficient biodiesel during this period of time, supporting
palm oil prices as demand for its biodiesel use increases."
However, the rise in palm oil prices gained extra momentum
on Monday from data from the Malaysian Palm Oil Board showing inventories of
the vegetable oil in Malaysia, the second-ranked producer and exporter after
Indonesia, falling for the first time in seven months in January.
The decline, of some 52,000 tonnes month on month to 1.93m
tonnes, was also larger than that investors had expected.
And although both production and exports fell by nearly 10%,
a reflection of seasonal factors, cargo surveyor Intertek Testing services
raised hopes for shipments by pegging them at 309,455 tonnes in the first 10
days of this month, up 4.1% from the same period of January.
The increase was led by India, although shipments to China
eased, now that the stockbuilding period ahead of lunar new year celebrations
The Muslim festival of Eid al-Fitr is seen as the next major
calendar boost to demand, although a spur likely to be felt more from next
At London-based broker VSA Capital, analyst Edward Hugo said
Monday's data had given "strength to our belief in stronger near term
"Stocks have fallen for the first time since June 2013
and are currently 25% less year on year."
Falling exports, and an implied rise in domestic consumption
in Malaysia, which has raised mandated use of biodiesel, "may also be an
indication of a wider trend for the year", Mr Hugo said.
"This would likely have a bullish effect on the European