SINGAPORE: Malaysian palm oil futures hit a new one-year high on Tuesday as traders bet on strong export growth after droughts had damaged the South American soy harvest that is crushed into competing soyoil.
Worries about soybean crop damage in Brazil can potentially boos demand for palm oil and has upped the stakes in the unfolding U.S acreage battle between soy and corn with a key US government report due to be released on Friday.
Comments by leading analyst Dorab Mistry at a conference in China that palm oil will rise to 4,000 ringgit by end-June also pushed prices higher.
But traders said the upswing in prices could set the stage for a correction in the coming days.
"I see this at the last spike before correction again. Look at the (thin) volume, it's short-cover volume. Upside will stay at 3,500 ringgit," said a dealer with a foreign commodities brokerage in Malaysia.
By 0726 GMT, benchmark June palm oil futures on the Bursa Malaysia Derivatives Exchange inched up 0.9 percent at 3,493 ringgit ($1,142) per tonne, a level unseen since last March.
Traded volumes stood at over 11,000 lots of 25 tonnes each, lighter than the usual 15,000 to 25,000 lots that get traded in the afternoon session.
Palm oil faces a resistance zone of 3,487-3,504 ringgit per tonne, said Reuters market analyst Wang Tao based on technical analysis, adding that a break above will trigger a significant rise to 3,806 ringgit in the next three months.
The edible oil futures started the week strongly, touching a one-year high level at 3,479 ringgit on Monday, as the latest Malaysian export data pointed to healthy demand outlook.
Exports rose 7.7 percent and 6.6 percent for the first 25 days of March from a month ago, said cargo surveyors Intertek Testing Services and Societe Generale de Surveillance respectively.
Market players are focusing on Malaysia's palm oil supply, as a lower crude palm oil production could push prices up further.
"Crude palm oil production growth is poised to decline by 1.5 percent year-on-year to 1.4 million tonnes in March and this trend may continue throughout second quarter of 2012," said Alan Lim, an analyst at Kenanga Investment Bank, in a research note.
"After 12 months of a strong production up-cycle, we think the effect of biological stress will kick in very soon," he added.
Brent held steady above $125 on Tuesday as comments from the US Federal Reserve indicating easy monetary policy would remain in place for some time raised investors' appetite for riskier assets.
In other vegetable oil markets, the most active US soyoil contract for May delivery lost 0.1 percent in Asian trade while the most active September 2012 soyoil contract on China's Dalian Commodity exchange inched up 0.1 percent.
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