Wednesday, December 28, 2011

S.American soy crop weather lifts palm to 5-week high

KUALA LUMPUR (Dec 28): Malaysian crude palm oil futures climbed to a near five-week high on Wednesday as dry weather in South America sparked concerns about lower soybean yields, potentially tightening soyoil supplies.

Despite the rise, prices of the tropical oil are still on course for their first annual decline since 2008 on worries the euro zone debt crisis could stall economic growth and commodity demand.

"In the short term, the euro zone debt crisis will fade from palm oil traders' focus," said a trader with a foreign commodities brokerage in Kuala Lumpur.

"Many are tracking the potential weather disruptions to soybean crops in south America and oil palm fruit harvesting in southeast Asia. The Iranian problem boosting crude oil is adding some shine to palm oil too."

Benchmark March palm oil futures on the Bursa Malaysia Derivatives Exchange settled up 0.8 percent at 3,185 ringgit ($1,000) after going as high as 3,205 ringgit -- a level unseen since Nov. 22.

Traded volumes for palm oil futures were surprisingly strong ahead of the new year holidays with 27,216 lots of 25 tonnes each, compared to the usual 25,000 lots.

Traders said market players were likely squaring off their books ahead of time. Dealers were also eyeing weather developments in Malaysia, the No.2 producer of the vegetable oil where regularly issued data may show signs of heavy rains affecting production.

So far, planters have reported some disruption in deliveries of crude palm oil to refineries and ports in southern Johor state that accounts for at least 20 percent of national output.

"Production in Johor is down but it is really not so bad in other parts of Malaysia such as Sabah. I would not be too surprised, once you balance the numbers, if we get a tiny gain in output this month," said another trader in Kuala Lumpur.

Palm oil production in Malaysia is now in the seasonally low yield phase and many planters and traders expect stock levels to come down although the pace of the decline depends on the export trend.

Exports have moderated after exceptionally strong growth in July and August, potentially easing any tightness in stocks. Cargo surveyors reported more than an 11 percent drop in Malaysian exports in Dec. 1-25 from a month ago as China and India slow shipments for the year end.

Brent crude edged down on Wednesday after rallying for six straight sessions, but prices continued to hover near $109 per barrel supported by Iran's threat to halt oil shipments through the Strait of Hormuz and positive U.S. data.

U.S. soyoil for January delivery fell 0.4 percent in Asian trade after posting strong gains in the previous session. The most active Sept 2012 soyoil contract on China's Dalian commodity exchange rose nearly 1 percent.

"The focus is still on South America's weather and La Nina, but this is not exactly a big problem as China has enough stocks of soybean oil. The probability of a serious supply disruption is not big," said Zhang Juan Cong, an oil analyst with Dadi Futures in Hangzhou.- Reuters

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