Malaysian palm oil futures dipped 0.8 per cent yesterday as some investors booked profits on a rally fuelled by expectations that India would have to import more vegetable oils as monsoon rains were below normal.
But traders said the decline was temporary as the market was on the lookout for more news on the monsoon, which is a lifeline to Indian farmers who rely on the rains to water their crops as just 40 per cent of the country’s farmland is irrigated.
Any impact on soybean harvests will lead to aggressive imports. The signs are not encouraging as India’s Meteorological Department said the South Asian country’s monsoon rains for this week were 68 per cent below normal.
“Traders are poised to short cover but they need to know more about the monsoon, so some are cutting down on some long positions, just in case,” said a trader with a local commodities brokerage.
The benchmark September palm oil contract on the Bursa Malaysia Derivatives Exchange settled down RM19 to RM2,317. Overall traded volume stood at 11,629 lots at 25 tonnes each.
Investors were also torn on the impact of the brewing El Nino condition, which brings hotter weather to top palm producers Malaysia and Indonesia that can sap palm oil yields 12-18 months later, and also impedes India’s June-Sept monsoon.
“While the El Nino has the potential to affect CPO prices positively, there are other factors to consider; the prevailing weak export demand, the potential recovery of soybean supply in the US and a potential recovery of South American soybeans in March-May 2010,” UBS analyst Alain Lai said in a note.
But export trends appear to be on the rebound with cargo surveyor Intertek Testing Services reporting a 3.9 per cent rise in Malaysian exports to 1,017,105 tonnes in June 1-25 compared with a 28.3 per cent slump in the June 1-10 period.
Chinese and European purchases drove the export growth, although India was still lagging slightly in terms of new orders.
Oil surged above US$70 a barrel with vegetable oil markets moving in tandem as soyoil and rapeseed oil is increasingly channeled into the European and South American biofuel sector after recent commodity price corrections.
US soyoil futures climbed 1.5 per cent and the most-active January 2010 soyoil contract on Dalian Commodity Exchange, which gives some support to Malaysian palm futures, gained 1.1 per cent.
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