Malaysian palm oil futures rose more than 2 percent before easing on Wednesday as traders eyed growing demand for biodiesel while tension in the Middle East boosted crude oil. Palm oil is less likely to be channelled into biofuels due to a lack of government subsidies, but mandates in Brazil and the United States may see more soyoil taken up, which leaves palm oil to lead the food sector.
The benchmark May 2011 crude palm oil contract on Bursa Malaysia Derivatives added 1.2 percent to 3,590 Malaysian ringgit ($1,183) a tonne. Earlier, prices rose to a high at 3,629 ringgit - a level not seen since February 22. "The palm oil market is firming," said one trader.
"It is tracking crude oil. The Malaysian palm oil is tracking external markets."Palm oil has been volatile, like most commodities, as traders are trying to decide whether rising crude oil prices, owing to the spreading Middle East unrest, will slow economic growth or fuel demand for feedstocks that can be converted into diesel.
"The revival of talk about biofuel, biodiesel, ethanol, is in the market again," said a trader. "If the situation in the Middle East is going to persist, and crude oil stays above $100, then they all will revive again." Overall palm oil volumes were at 21,861 lots of 25 tonnes each from the usual 14,966 lots on Tuesday.
Benchmark palm oil prices have been extremely volatile in recent weeks, touching a near three-year high at 3,967 ringgit on February 10, before falling to a three-month low at 3,336 in late February. ICDX's May CPO futures contract was at 10,450 rupiah ($1.186) per kg, compared to 10,360 rupiah per kg when it opened. Market volume was 1,966 lots of 10 tonnes each. In other vegetable oils, the most-active September 2011 soyoil on the Dalian Commodity Exchange was at 10,380 yuan versus an open at 10,188 yuan.
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