Bloomberg News

Palm Oil Gains a Third Day as Drop in Output May Lower Reserves

January 16, 2013

Palm oil climbed for a third day on speculation that stockpiles in Malaysia, the world’s second- largest producer, may drop from a record as output falls and demand recovers in India and Pakistan.

The contract for delivery in March, which had the largest open interest, advanced as much as 1.3 percent to 2,428 ringgit ($805) a metric ton on the Malaysia Derivatives Exchange, and ended the morning session at 2,421 ringgit in Kuala Lumpur. That helped trim losses to 0.7 percent this month.

Production in Malaysia, the largest grower after Indonesia, is typically at its lowest in January and February every year. Output dropped 5.9 percent to 1.78 million tons in December from a month earlier, while stockpiles reached an all-time high of 2.63 million tons, according to the nation’s palm oil board.

“The low-production season has already started,” Rajesh Modi, a trader at Sprint Exim Pte., said by phone from Singapore. “Demand is coming in as soybean oil and palm oil’s difference continues to be high. There’s continuous demand from India and Pakistan.”

Soybean oil’s premium over palm oil was at $320.20 a ton today, compared with a five-year average of $179.90 a ton, according to data compiled by Bloomberg. Soybeans for March delivery gained 0.4 percent to $14.1975 a bushel on the Chicago Board of Trade. Soybean oil for delivery in March was little changed at 50.90 cents a pound.

Futures may rally to as much as 2,615 ringgit in the coming months, Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt. Ltd., said from Mumbai.

Refined palm oil for delivery in May increased 0.9 percent to 6,784 yuan ($1,091) a ton on the Dalian Commodity Exchange. Soybean oil for September rose 0.6 percent to 8,664 yuan a ton.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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