Palm oil surges to fresh all-time high on edible oils shortage

[KUALA LUMPUR] Palm oil futures in Malaysia shot to a fresh record on the back of rising prices of rival edible oils and an extended rally in petroleum.

Prices for January, the most active contract, rose as much as 2.9 per cent to RM5,220 (S$1,690) a tonne before trading at RM5,165 by the midday break. The market is backwardated with November at RM5,393 and December at RM5,267.

"Palm oil is not only riding on tight supply, which continues to sustain higher prices, but is also getting broader external support from energy markets," said Sathia Varqa, owner of Palm Oil Analytics in Singapore.

Soyabean oil is at the strongest since the end of July, while canola is trading at the highest ever.

Production of palm oil in Malaysia has fallen behind expectations after a resurgence of Covid-19 infections in June prolonged a freeze on the recruitment of much-needed foreign workers at estates, exacerbating the country's labour shortage. The Malaysian Palm Oil Board reported that production from January to September was the weakest since 2017, and that yields may only show a year-on-year improvement toward the end of 2021.

"There's no stopping prices from going higher" until policies are implemented that are likely to cool the commodity market, such as higher interest rates, Varqa said. "Higher palm oil production and soaring stocks, as well as a cool down in energy prices will put a handbrake on the rally."

BLOOMBERG