Palm oil enters bull market as demand rises

Uptrend: The benchmark futures contract on Bursa Malaysia Derivatives in Kuala Lumpur settled at RM2,643 a tonne yesterday. That’s 21 above the closing price of RM2,188 reached on July 12

KUALA LUMPUR: Palm oil entered a bull market on rising demand for the edible oil ahead of festivals in China and India and as a slow recovery in El Nino-hit yields constrains supplies.

The benchmark futures contract on Bursa Malaysia Derivatives in Kuala Lumpur settled at RM2,643 a tonne yesterday. That’s 21% above the closing price of RM2,188 reached on July 12, meeting the common definition of a bull market. Futures closed 4.1% higher, the biggest gain since September.

Exports from Malaysia jumped 21% in July from a month earlier and cargo surveyor data show strong shipments in the first half of August. China, the world’s second-biggest palm oil buyer, is set to replenish stockpiles to meet demand for foods like mooncakes ahead of its three-day Mid-Autumn festival in September.

India may also re-stock ahead of Diwali in October, according to Josephine Goh, associate director of futures and commodities at RHB Investment Bank Bhd.

“Physical buying remains strong in light of a tight market,” said David Ng, derivatives specialist at Phillip Futures Sdn in Kuala Lumpur. “Demand is still strong ahead of seasonal festival in China.”

Malaysian palm oil exports surged 31% the first 15 days days of August, cargo surveyor Intertek Testing Services said.

Shipments climbed 32% in the period, according to Societe Generale de Surveillance. Malaysia is the world’s biggest palm oil producer after Indonesia and the two account for about 86% of global supply.

Tight supply has also boosted prices, according to RHB’s Goh. Palm oil inventories in Malaysia dropped 0.2% to 1.77 million tonnes at the end of July from a month earlier, according to Malaysian Palm Oil Board data. While crude palm oil production rose 3.5% to 1.59 million tonnes, it was the lowest for the month since 2010, the data show. Stockpiles in Indonesia slumped in June, according to the Indonesian Palm Oil Association.

While production is set to increase in the second half, the recovery of oil palms affected by El Nino is slower-than- expected, according to Rafael B. Concepcion Jr, chief financial officer at Golden Agri-Resources Ltd. Full-year output at Indonesia’s top producer is set to drop by 15% to 20%, he said on Friday.

Yields may only pick up from September, according to Zakaria Arshad, chief executive officer of Felda Global Ventures Holdings Bhd, the world’s biggest crude palm oil producer.

“The market’s bullish reaction was raised by nearby tightness in crude palm oil output,” said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn.

“The rally has more legs, until we see a massive recovery in production both in August and September.” – Bloomberg