KUALA LUMPUR: Malaysian palm oil futures climbed on Thursday as strong Chinese demand for soybeans fuelled expectations for more edible oil orders in the weeks to come.
Signs of strong China demand have been growing with economic data showing Chinese private sector factories were at their busies in eight months in October. Malaysia's palm oil exports last month were at their highest in a year, driven by a steady flow of Chinese orders as well as strong European demand.
Prices of palm oil have dropped 20 percent so far this year thanks mainly to record stocks. Although cheaper palm oil cargoes has spurred demand, production has risen at a faster pace and could lead to record stocks again in October.
"The question is whether exports can override the burden of the production. If demand is sustained or rises higher, at least the stocks won't be so bad. People are very worried," said a trader with a foreign commodities brokerage.
By the midday break, the benchmark January contract on the Bursa Malaysia Derivatives Exchange rose 1.2 percent to 2,525 ringgit ($827) per tonne.
Total traded volumes stood at 11,366 lots of 25 tonnes each, a tad lower than the usual 12,500 lots.
Technicals showed palm oil still targets 2,468 ringgit per tonne, as the current fall from 2,615 ringgit is expected to reverse the rebound from the Oct. 3 low of 2,230 ringgit, said Reuters market analyst Wang Tao.
Surging palm oil output from Southeast Asia has led to inventory levels in Malaysia, the world's No.2 producer, hitting a record 2.48 million tonnes in September.
Traders expected October end stocks to reach about 2.6-2.7 million tonnes given that production last month would have been a seasonal peak.
Brent crude edged down toward $108 a barrel on Thursday as investors focused on concerns that storm Sandy's rampage across the US East Coast could reduce fuel demand and shrugged off data pointing to a recovery in China.
In other vegetable oil markets, US soyoil for December delivery inched up 0.8 percent in early Asian trade on China demand hopes.
The most-active May 2013 soybean oil contract on the Dalian Commodity Exchange rose 0.8 percent by the midday break.
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