JAKARTA: Malaysian palm oil futures traded firmer on Friday as positive demand expectations supported prices, while investors mulled over the possible impact of a large Chinese purchase of rival soyoil.
The benchmark July crude palm oil contract on Bursa Malaysia Derivatives traded 0.8 percent higher at 3,253 Malaysian ringgit ($1,079) per tonne. It earlier hit a high at 3,255. Palm oil prices have dropped 14 percent so far this year.
Overall traded volume was at 5,449 lots of 25 tonnes each, compared to 13,513 lots on Thursday.
"Palm oil is oversold at the moment," a Kuala Lumpur-based analyst said. "In terms of inventory levels, it's not excessive.
"Increasingly, we will probably see higher exports in the coming months, which could potentially lift CPO prices."
Market participants have largely ignored palm oil fundamentals in recent weeks, instead tracking moves in other commodity markets.
Late on Thursday, Argentina's Foreign Minister and China's Commerce Minister said China would buy 500,000 tonnes of Argentine soyoil, after a trade dispute last year reduced Chinese imports of the product.
A Chinese trade delegation visited Buenos Aires as part of a thaw in relations after Beijing imposed a de facto ban on imports of soyoil from Argentina for six months last year.
"You assume that when they stopped buying from Argentina, it meant they had to make it up somewhere -- be it in soyoil elsewhere in the world or in palm," said one analyst.
"The Chinese buying of late for palm hasn't been terribly strong so I do not think it's been in the palm space."
Global palm oil output was around 45 million tonnes last year, with?leading buyer China importing 5.696 million tonnes last year.
The most active January 2012 soyoil on China's Dalian Commodity Exchange was firmer at 9,976 yuan.
ICDX's July CPO futures contract was at 9,455 rupiah per kg, compared to 9,405 rupiah per kg when it opened. Market volume was 2,128 lots of 10 tonnes each.
Reaction on the Chinese soyoil deal among vegetable oil traders was mixed.
"Imports of palm oil will definitely reduce, but it's hard to tell how much it is going to decrease for now as they might ship the 500,000 tonnes of Argentina's soyoil during a different time period to China," said a trader with foreign brokerage in Shanghai.
"However, if the government were to replenish the vegetable oil reserves in the country, impact on palm oil imports will be minimized," the trader added.
Benchmark palm oil has slipped from a peak at 3,967 ringgit in February, on rising stocks and weak demand.
Last week, prices fell to their lowest level since November 2010 along with a broad sell-off in commodities as traders initially fretted over the state of the US economy and cut risk taking.
This week, benchmark prices have gained 1.8 percent this week, despite a second major sell-off on Thursday, in less than a week.
Analysts, however, say that as we approach a higher production cycle in the coming months, demand will rise from China and India, supporting prices.
"Relative to other commodities, palm oil is pretty stable," the analyst said. "To an extent, it's probably because it has fallen ahead of everything else ... It had already peaked about three months ago.
"The second point is that at the end of the day, it is still a food item, so demand will always be there."
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