Monday, October 24, 2011

Palm oil up on Euro optimism, lower output

JAKARTA: Malaysian palm oil futures rose on Monday, Oct 24, as possible progress on the euro zone debt problems combined with expectations of lower output for the edible oil, helped boost sentiment.

Asian equities also rose on hopes that Europe's leaders were making some progress towards tackling the region's debt crisis.

At a summit on Sunday, European Union leaders neared agreement on bank recapitalisation and the use of European Financial Stability Facility (EFSF) to stave off a bond market contagion.

Benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange traded up 0.3 percent to RM2,892 (US$918) a tonne, versus an earlier high at 2,896.

Traded volumes for the January palm contract stood were thin at 2,871 lots of 25 tonnes each compared with 11,887 lots on Friday.

"There is a bit of strength coming from higher crude oil and the Dalian," said a palm oil dealer in Kuala Lumpur. "The feeling in the palm market now is not too bearish because we're expecting to see production coming off.

"The market has been pretty volatile for the last few days, and palm oil is affected by Euro sentiment as well."

Palm oil is widely used in Europe, the second-largest consuming region after Asia, for food and fuel.

A slowdown in Europe could weaken some demand although palm oil could maintain its market share in the region as it is the cheapest edible oil.

Reuters technical analyst Wang Tao said palm oil may briefly touch the Oct 21 high of RM2,903 per tonne and then fall to RM2,870.

In comparative markets, U.S. soyoil for December delivery'' climbed 0.9 percent in Asian trade, while China's most active May 2012 soybean oil contract was also up.

"From these levels we're still relatively bullish compared to the market," said Abah Ofon, a Singapore-based analyst at Standard Chartered Bank. "We're probably looking for prices to inch higher going into the first quarter of next year.

'Going forward, the market is going to be supported by the fact that yields are probably going to inch lower, and by the fact that palm oil is still traded at a healthy discount to soyoil."

Brent crude rose above US$110 a barrel after European leaders made some progress over the weekend on a plan to fight the euro zone debt crisis, while manufacturing data from China also supported sentiment.

On the events calendar, cargo surveyors Intertek Testing Services and Societe Generale de Surveillance are due to issue Oct 1-25 Malaysian palm oil exports on Tuesday.

"Exports are doing OK so far this month, so we don't think end stocks will be very much higher, compared to the previous month," the dealer added.

Indonesia, the world's biggest palm oil producer, said late on Friday it has lowered the crude palm oil (CPO) export tax for November to 15 percent, from 16.5 percent in the previous month. - Reuters

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