Palm oil up as traders bet on stocks below 2mn tonnes

KUALA LUMPUR: Malaysian palm oil futures edged higher on Tuesday as traders bet strong exports would rein in stocks below 2 million tonnes this month, although financial market volatility kept investors cautious.

Palm oil has been weighed by high stocks in Malaysia and Indonesia and most recently, wobbly financial markets and concerns of weaker global economic growth after the US credit rating got downgraded earlier this month.

"Trading is a tad lighter today thanks to investor caution. With exports continuing their strong performance, stocks are going to come down this month given that production will dip thanks to the holiday season," said a trader with a foreign commodities brokerage.

By midday, the benchmark November contract on the Bursa Malaysia Derivatives Exchange rose 0.4 percent at 3,015 ringgit ($1,012)per tonne. The previous day prices touched 3,045 ringgit, to flirt with near-two week highs.

Overall traded volumes were light, with 5,043 lots of 25 tonnes each changing hands compared to the usual 12,500 lots.

But palm oil's demand-supply data points may turn more bullish. Malaysian palm oil exports for the first 15 days of August rose more than a fifth and traders expect the trend to continue.

Production is likely to slip as estate workers take extended leave for Muslim fasting observance of Ramadan that began earlier this month and will end with Eid celebrations in late-August.

Japanese shares fell on Wednesday, dragged down mainly by hi-tech firms, while the euro wobbled after French and German leaders failed to deliver a solution to the euro zone debt crisis and restore investor confidence after a global market rout.

Weaker equities markets put some pressure on commodity markets. US soyoil for September delivery was unchanged in Asian trade. China's most-active May 2012 soyoil contract edged up 0.3 percent.

"Prices of agriculture commodities in China are likely to increase due to strong demand for soybean, soyoil and soymeal," said a trader with Shanghai-based foreign brokerage.

"The stocks level of these products are healthy, resulting in a firm trend on agriculture commodities," he added.

Copyright Reuters, 2011