Palm oil hits 6-month high on tight supply, monsoon woes

[KUALA LUMPUR] Malaysian palm oil futures rose for a third day to hit a near six-month high on Thursday, on fears that supplies of the tropical oil will be further tightened by another round of monsoon rains in the No 2 grower.

The Malaysian Meteorological Department raised its weather warning on Thursday to an "orange stage" from a "yellow stage", and forecast the states Johor, Pahang, Terengganu and Kelantan to receive heavy rains until the end of the week.

Johor and Pahang are the top palm-producing states in Peninsular Malaysia and account for 30 per cent of the country's palm output this year, according to the Malaysian Palm Oil Board.

"Supply in the near term is tight. We don't know what the damage will be for January," said a trader with a foreign commodities brokerage in Malaysia.

The trader added that until worries of floods ease, prices will likely remain propped up between RM2,320 and RM2,420.

The benchmark March contract hit its highest since July 11 before settling with a 1.7 per cent gain at RM2,369 (US$665) per tonne by Thursday's close. The contract hit a high of RM2,379 in late trade.

Total traded volume stood at 47,148 lots of 25 tonnes, above the usual 35,000 lots.

Traders said the palm oil contract was earlier anticipated to be weak as crude oil prices plunged and dented palm's biodiesel uptake.

But monsoon flooding, worse than usual last year, disrupted harvesting and logistics in some parts of Peninsular Malaysia. The squeeze in supplies may now last longer than expected, industry players say.

A fall in the Malaysian ringgit also helped boost benchmark prices nearly 25 per cent from its over five-year low of RM1,914 touched in September.

"What happened at end-December is that the floods came into the picture and the ringgit continuously weakened," the Malaysia-based trader added.

"The bearishness in crude is being ignored. Those who sold earlier are buying back." The Malaysian currency, which has faced intense selling pressure over the past few weeks from concerns that tumbling oil prices would impact the country's fiscal position, pulled off 5-1/2-year lows against the dollar on Thursday to rise 0.4 per cent to 3.5650.

Brent bounced around US$51 a barrel on Thursday as bulls and bears tugged at both ends in their search for a bottom in the second-biggest price rout on record.

In other vegetable oil markets, the US soyoil contract for March rose 0.8 per cent in late trade, while the most active May soybean oil contract on the Dalian Commodity Exchange gained 0.6 per cent.

REUTERS