Malaysian crude palm oil futures climbed to a near three-week high on Friday on shortcovering ahead of the weekend that was driven by upbeat US data and prospects of lower output triggered by heavy rain fall in parts of Malaysia. New claims for unemployment benefit in the US dropped to their lowest in 3-1/2 years, bolstering views that the recovery is gaining momentum and adding cheer to global financial markets.
Despite closing higher for the past few days, palm oil has lost nearly 17 percent this year and is on course for the first annual decline since 2008 thanks to concerns over the eurozone debt crisis stalling growth and commodity demand. "The market has been compressed for too long at 2,890 to 3,030 ringgit. The intraday has been heavily overbought and I don't think it can sustain this kind off rally," said a trader with a local brokerage.
Benchmark March palm oil futures settled up 2.4 percent on the Bursa Malaysia Derivatives Exchange to 3,170 ringgit ($1,000)per tonne. It earlier touched a high of 3,178 ringgit, a level last seen on November 23. Traded volumes for palm oil futures were thin ahead of a long Christmas weekend at 18,668 lots of 25 tonnes each, compared to the usual 25,000 lots.
"It is still weather play and the market's tracking stronger soyoil. The charts are also bullish as the market settled at day's high for 4 days continuously," said another dealer with a foreign commodities brokerage. The Malaysian Meteorological Department has issued warning of heavy rains that may cause floods over low-lying areas in key oil palm growing states of Pahang, Johor, Sabah and Sarawak, together accounting for almost 75 percent of Malaysia's palm oil output.
Heavy rains may cause logistics disruption if they worsen as floods hitting oil palm estates may cut access roads to plantations. But palm oil stocks may get a little breathing space as exports from Malaysia are also falling, cargo surveyor data showed this week. The most active September 2012 soyoil contract on China's Dalian commodity exchange gained 0.7 percent.
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