Palm flat as output rise

JAKARTA: Malaysian palm oil futures traded flat on Wednesday, flirting with near one-week highs, as expectations of a higher production cycle offset a likely short-term demand up tick.

The benchmark September crude palm oil contract on the Bursa Malaysia Derivatives Exchange traded 0.2 percent lower at 3,215 Malaysian ringgit ($1,061) a tonne, after hitting a high of 3,237 ringgit.

"The market today is slightly down," said one trader. "People are looking for direction and new leads in the market.

"Demand is OK because we are moving toward the Muslim festival season the problem is production is still going higher."

Market players are expecting a higher production cycle in the second half of 2011 in Southeast Asian producing countries, which account for more than 90 percent of global output.

Last week, benchmark prices touched their lowest level since May 6, at 3,163 ringgit, as stock levels grow.

Stocks in Malaysia are expected to rise above a 16-month high of 1.92 million tonnes hit last month. While this could draw in more demand, production levels are keys.

"If the production overlaps demand stocks above 2 million then the market will be depressed," the trader added.

Investors say prices are likely to receive a short-term boost from improved demand in importing countries as the Muslim festival of Ramadan approaches in August.

On Monday, data showed that exports of Malaysian palm oil products for June 1-20 rose 22 percent to 969,804 tonnes from 794,322 tonnes shipped during May 1-20.

Traded volume for the September contract was 5,479 lots of 25 tonnes each, versus a total and one-month low at 8,778 lots on Monday.

Palm oil prices in the coming year might fall about 9 percent from their average in the last 12 months as global palm output is expected to raise sharply, Hamburg-based oilseeds analysts Oil World said late on Tuesday.

In the near-term, benchmark prices may either hover around 3,163 ringgit per tonne or rebound moderately to 3,278 ringgit, Reuters technical analysts say.

Also late on Tuesday, top palm oil producer Indonesia said it would lift its palm oil export tax in July to 20 percent.

In related markets, Brent crude rose, reversing consecutive five sessions of losses, as Greece's embattled government survived a confidence vote critical to avoid a debt default and investors awaited the outcome of a key US Federal Reserve meeting.

"Cash buying is quite strong especially the trading houses buying Indonesian CPO for nearby positions," a second palm oil trader said. "Without any real change to fundamentals, it is going along with outside markets like soy."

US soy oil for July delivery eased in Asian trade, while the most active January 2012 soybean oil contract on the Dalian Commodity Exchange also slipped.

Copyright Reuters, 2011