Crude palm oil futures on Malaysia’s derivatives exchange ended higher for a seventh consecutive session Friday, fuelled by fears of slower supply growth due to heavier-than-expected rainfall.
The new benchmark October contract on the Bursa Malaysia Derivatives exchange ended MYR38 or 1.6% higher at MYR2,449 a metric ton after moving in a MYR2,417-MYR2,461 range.
Palm prices have risen 6.5% this week, rallying on higher festive demand ahead of Ramadhan, the Islamic month of fasting starting in August, and weaker growth in July palm production due to heavier-than-expected rainfall.
In its weekly weather outlook report, The Malaysian Meteorological Department said the country's top palm oil-producing state of Sabah is expected to receive more rain, ranging between 10mm and 100mm during the July 21-31 period, and crop production in that region may be affected.
Growers and analysts said the La Nina-related heavy rainfall may stifle palm oil output in Malaysia and Indonesia, two of the top three producers, slowing supply growth.
Slower output growth this month due to lower yields in the states of Sabah and Sarawak has prompted trade participants and growers to cut forecasts for supply growth in July to 5% from a previous projection of 10%.
Morgan Stanley revised Friday its forecast for average cash CPO prices over the next two years up 1.9% to $815 a metric ton, or about MYR2,612/ton, due to the potential for lower production and tighter stock-to-usage ratios.
"The initial impact of La Nina could be slightly negative as fresh fruit bunch collection would be hampered by rain, leading to possible supply tightness," the investment bank said in a note.
The rebound in palm prices may accelerate in the September-December period as CPO would regain competitiveness if China and Argentina resolve a trade spat over soyoil.
"The ending of the dispute will be positive for soyoil imports and hence prices" of soy and rival vegetable oils, Morgan Stanley said.
China halted Argentinian soyoil shipments in April as part of a dispute over antidumping measures, adding further downward pressure to the price of soyoil lower–along with a record soybean crop in South America–and making it cheaper than palm oil, a rival product. A $100-a-ton premium for soyoil flipped to a discount of around $5/ton-$10/ton to palm oil.
In the cash market, palm olein for October/November/December shipment was traded at $787.50/ton free on board Malaysian ports, a Singapore-based trading executive said.
Cash CPO for prompt delivery was offered MYR40 higher at MYR2,510/ton.
CME Group Inc.'s dollar-based CPO futures for the September contract wasn't traded during Asian hours.
The rupiah-denominated October CPO futures on the Indonesia Commodity and Derivative Exchange was trading 1.1% higher at IDR6,600 a kilogram at 1006 GMT, with 269 lots changing hands. One lot equals 10 tons.
Open interest on the BMD was 69,473 lots, versus 71,380 lots Thursday. One lot is equivalent to 25 tons.
A total of 26,327 lots of CPO were traded versus 30,313 lots Thursday.
Closing BMD Crude Palm Oil (CPO) futures prices in MYR/ton at 1000 GMT: Month Close Previous Change High Low Aug'10 2,493 2,459 Up 34 2,508 2,465 Sep'10 2,470 2,439 Up 31 2,480 2,435 Oct'10 2,449 2,411 Up 38 2,461 2,417 Nov'10 2,443 2,410 Up 33 2,455 2,415
-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.com
(END) Dow Jones Newswires
July 16, 2010 06:27 ET (10:27 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.
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