Palm oil notches biggest gain in over 4 yrs on Indonesia's subsidy plan

[KUALA LUMPUR] Malaysian palm oil climbed more than 5 per cent on Thursday, its biggest single-day gain since October 2010 as the market was buoyed by hopes a plan by the world's top producer Indonesia to increase biodiesel subsidies would make blending profitable and as technicals provided support.

The benchmark April contract rose as much as 5.05 per cent to RM2,315 (US$648) per tonne, its highest since Jan 21 and off a 1-1/2-month low of RM2,106 reached last week.

"It's to do with the biodiesel issue in Indonesia, what the energy minister is proposing," said a trader with a foreign commodities brokerage in Kuala Lumpur. "I think basically because of that and then charting looks technically friendly."

Total traded volume stood at a whopping 91,129 lots of 25 tonnes, compared to the usual average of 35,000 lots by the end of the day.

Plans by President Joko Widodo's government to ramp up biodiesel subsidies passed another important legislative hurdle late on Wednesday, as an influential parliamentary committee backed a near-threefold increase.

The energy parliamentary committee agreed to increase Indonesia's biodiesel subsidy to 4,000 rupiah (32 US cents) per litre from 1,500 rupiah per litre now, versus the original proposal of 5,000 rupiah per litre.

"That's the game changer," said another trader with a foreign commodities brokerage in Kuala Lumpur. "That's saying that biodiesel (blending) will work again."

A hike in subsidies could boost the use of palm oil for blending into biodiesel, a demand that dwindled after crude oil prices crashed 60 per cent between June and late January.

The proposal, however, still needs approval from the parliamentary budget committee which is due to give its verdict later this month. Some market participants say the jump in palm futures on Thursday may have been overdone.

"There was some over-reaction, that's why prices went that high," said a third Kuala Lumpur-based trader.

Technicals showed that palm oil is expected to end its current rebound around a resistance at RM2,248 per tonne, as indicated by its wave pattern and a Fibonacci ratio analysis, according to Reuters market analyst Wang Tao.

Meanwhile, oil prices fell on Thursday, extending big losses logged in the previous session as record high inventories in the United States coupled with concern over global demand cut short a four-day rally.

In other competing vegetable oil markets, the US soyoil contract for March rose 2.84 per cent, while the most active May soybean oil contract on the Dalian Commodities Exchange edged down 0.44 per cent.

REUTERS