Palm oil prices notched up their highest close in more than a month, spurred by hopes for pre-Ramadan demand, and closing their discount to rival soyoil, which was depressed by hefty Chinese cancellations.
Palm oil futures for August closed up 1.0% at 2,359 ringgit a tonne in Kuala Lumpur, the highest close for a benchmark contract in six weeks, and taking nearly to 6% their recovery from a 2013 low reached earlier this month.
The increase reflected hopes for a rise in demand among Islamic countries ahead of the Ramadan festival, which starts in early July, to revive Malaysian exports.
Malaysia’s palm shipments in the first 20 days of May were running 9.4% below those in the same period of April, according to Intertek, with rival cargo surveyor SGS pegging the decline at 6.6%.
“Export demand from the Middle East and South Asia usually surges before the Muslim fasting month, when communal feasting typically boosts total consumption,” Say Hwa, head of investment at Singapore-based Phillip Futures, said.
“Traders will be counting on a recovery in export figures later in the month as buyers stock up.”
‘Friendly to the price’
Prices have also received a boost by comments from Datuk Lee Yeow Chor, the chairman of the Malaysian Palm Oil Council, that prices of the vegetable oil would pick-up in the July-to-September quarter, supported by tighter supplies.
Inventories in Malaysia, the second-ranked palm oil producing and exporting countries, fell to 1.93m tones last month from 2.6m tonnes in December.
“This is a big drop and exports for the first four months of 2013 also increased compared to last year,” he told the Bernama news agency.
“All this reflects very good fundamentals, which I think will be friendly to the palm oil price.”
The rise in palm oil prices contrasted with a 0.2% gain to 49.57 cents a pound in Chicago futures in soyoil as of 07:00 local time (13:00 UK time) (albeit after a strong performance in the last session), depressed by the cancellation by China, the top importing country, of 150,000 tonnes in orders from South America.
The orders were cancelled because the poor performance of domestic soyoil prices renders imports too expensive, the official CNGOIC crop think tank said, revealing the cancellations.
China’s imports of soybean themselves are expected to pick-up after a soft start to the year, with buy-ins down 15% year on year in the January-to-April period.
Analysis group Oil World on Tuesday forecast China’s soybean imports hitting 6.0m tonnes this month, up 13.2% year on year, and 7.0m tonnes next month, a gain of 25%.
However, demand has been primarily for soymeal, the feed ingredient produced from soymeal processing, rather than the accompanying soyoil.
Palm oil vs soyoil
Palm oil prices have remained at a discount of more than $300 a tonne to rival soyoil, in part thanks to the relatively large supplies of palm in Indonesia and Malaysia, compared with a soy complex tightened by last year’s drought-hit US harvest.
Furthermore, while US biofuel plants maintain strong demand for use of soyoil in making biodiesel, regulatory uncertainties have clouded palm oil’s take-up by European peers.
Nonetheless, Malaysian palm oil prices have now risen 4.0% this month, in dollar-adjusted terms, compared with a rise of less than 1.0% in soyoil.