Malaysian palm oil futures rose 0.4 percent on Monday on hopes that buyers will switch away from more expensive rival soybean oil. Palm oil, at a discount of more than $180 to soyoil, may attract demand from price-sensitive China and India, the world's top two buyers of the vegetable oil.
"The price of palm oil is relatively cheap compared to other vegetable oils," said a trader in Kuala Lumpur. "It is going to be firm unless there's a huge plunge in petroleum or soyoil." US crude futures slipped below $109 a barrel on Monday after three days of gains, as fears that high prices would dampen demand overrode concerns over a cut in Saudi oil output. The benchmark July crude palm oil contract on Bursa Malaysia Derivatives Exchange rose 13 ringgit to 3,246 ringgit($1,073) per tonne.
Overall traded volume stood at 19,154 lots of 25 tonnes each, below the usual 25,000 lots. Last week, the Malaysian market fell 4.8 percent due to a build-up in inventories, soaring production and fears that commodity markets will soon reverse gains. The Malaysian market had been weighed down with other commodities last week when investment bank Goldman Sachs recommended investors go underweight commodities over a three to six month horizon. "The sell-off last week after Goldman Sachs report is a tad overblown," said a trader in Kuala Lumpur.
"The market is reflecting longer term tightness and demand should there be some weather vagaries. It can ill-afford any weather related issues with tight overall agricultural commodity stocks." A bumper crop of soy is expected in South America, although rain and thunderstorms through Brazil's Rio Grande do Sul crop region is further delaying the soybean harvest there.
Other vegetable oils were mixed. US soyoil for May delivery reversed losses from the previous session, while most active January 2012 soyoil on China's Dalian Commodity Exchange fell 0.3 percent. China's central bank on Sunday raised lenders' required reserves by 50 basis points, the fourth this year, to absorb liquidity and control inflation.
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