Outlook mixed for palm oil

CRUDE palm oil (CPO) prices could fall temporarily on news that the commodity's stock hit a 13-month high before rising again as demand from China kicks in, traders said.

The Malaysian Palm Oil Board reported yesterday that December palm oil stocks surged 15.7 per cent to a 13-month high of 2.24 million tonnes as demand fell faster than production.

"The latest set of numbers was quite scary. Exports were lower and stock levels were higher than our estimates. There is an immediate bearish reaction and prices slid. We think, at most, prices could fall to RM2,550 per tonne," brokerage Oriental Pacific Futures Sdn Bhd's executive director Ricky Chin said.

In a separate telephone interview from Singapore, a senior trader remarked that the December stock of 2.2 million tonnes was surprisingly high and he was seeing more commodity funds back in the market.

The funds were said to be instrumental for palm oil prices reaching a record of more than RM4,000 a tonne in 2008 as these big investors rushed to find secure investments. "We're starting to see more speculative play than physical demand. The funds are back in the markets. They'll push prices up and down with more volatility," he said.

Yesterday, third month benchmark palm oil futures traded on the Bursa Malaysia Derivatives market fell RM41 to close at RM2,585 per tonne.

Still, palm oil traders and futures brokers think prices could rise as high as RM2,900 per tonne by March.

In the next few weeks, however, we anticipate more buying from China as the demand for cooking oil heightens in preparation for the Lunar New Year," Chin told Business Times. He thinks palm oil is likely to trade at a higher band of between RM2,800 and RM2,900 per tonne in the longer term.

A trader with a multinational oil palm plantation company in Kuala Lumpur, however, had a lukewarm outlook. "At present, the futures market is rather quiet. There's not much movement. Maybe it is because it is still early in the year," he said.

"But as we enter into low crop months, we may see lower stock levels in January and February. In the short term, we can expect palm oil to trade sideways at between RM2,500 and RM2,700 per tonne."

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