Palm oil bounces on euro zone report, export hopes

KUALA LUMPUR: Malaysian palm oil futures bounced on Wednesday on improving sentiment after a news report said European policy makers will increase financial firepower to resolve the region's debt woes.

Although euro zone officials denied the reported agreement to increase the bailout fund by five-fold, global financial markets rose on expectations that a deal was imminent.

Traders said some players are covering nearby palm oil contracts given strong prompt demand, although expectations of high production this month could see prices come back again.

"Markets are on a high as they think the end is near with this euro zone crisis," said a trader with a foreign commodities brokerage.

"Also on the domestic front, palm oil exports are expected to record good growth for the first 20 days of this month."

Benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange settled up 2 percent to 2,892 ringgit ($922). The previous day, the contract dropped to 2,817 ringgit -- the lowest since Oct. 11.

Traded volumes stood at 29,646 lots of 25 tonnes each, compared to the usual 25,000 lots as more market players took up positions.

The palm oil market has been trading in a contango -- where the third month or the most active month is at a discount to later contracts -- due to expectations of production continuing to rise in the short term.

"In the nearby months there is a lot of palm oil supply and the market is talking about another 5-10 percent increase, which means stocks could hit 2.5 million tonnes soon," said another trader in Kuala Lumpur.

There is also the possibility of a slowdown in Malaysian crude palm oil shipments, which have lost their earlier discount to the Indonesian grade to trade at a 1.65 percent premium.

Malaysia's earlier discount to the Indonesian grade had triggered orders from overseas buyers looking to secure crude palm oil at cheaper rates after Jakarta kept export taxes for the grade unchanged and slashed those of refined palm oil.

But traders said cargo surveyors on Thursday are still likely to report Malaysian palm oil exports rising by about 5 percent to over 1 million tonnes in Oct. 1-20 from the same period a month ago.

US soyoil for December delivery rose 0.4 percent in Asian trade although gains were limited by expectations for a bigger harvest and concerns about reduced demand from the world's top buyer, China.

China's most active May 2012 soybean oil contract and RBD palm olein barely moved as traders awaited signs on the country restocking after the Golden week holidays this month.

"The restocking is not so obvious at this moment, we still have to wait and see," Zhang Ruming, a research manager with Liangyun Futures, said.

Copyright Reuters, 2011