Malaysian palm oil futures jumped to a fresh three-year high on Wednesday as traders bet on further tightening of supplies and strong economic growth underscored by China's surprise rate move. On Tuesday, China, the world's No 2 vegetable oil buyer, raised interest rates for the second time in just over six weeks, renewing its battle with stubbornly high inflation.
"Theoretically market should fall after Chinese government increased bank interest rate but traders think the other way round. They see it as a hint of strong economic growth within 3 to 6 months," said a trader in Kuala Lumpur. The benchmark April crude palm oil contract on the Bursa Malaysia Derivatives Exchange rose half a percent. Earlier in the day the contract hit a three-year high of 3,948 ringgit ($1,301)a tonne. Overall volumes shot up to 28,604 lots at 25 tonnes each, compared to the usual 15,000 lots.
Palm oil also drew support from concerns that the recent heavy rains and floods would have an impact on yields in Malaysia. A Reuters survey showed Malaysia's January palm oil stocks could fall to a six-month low of 1.45 million tonnes ahead of official government release due on Thursday.
Technicals were also bullish. A Reuters analysis showed palm oil is likely to surge towards 4,060 ringgit per tonne as an upward wave (5) is advancing. The most active September soyaoil contract on China's Dalian Commodity Exchange hit two-week highs, playing catch up with overseas markets that gained when the country's financial market were closed for one-week Lunar New Year holiday.
"China's markets have not recover fully as most traders still on holiday," a trader in Shanghai said. "The trade also reflect traders anxieties on world's food supply ahead of US Department of Agriculture's global supply/demand data." The USDA report due later in the day is likely to report an additional tightening of US and global soyabean stocks in February, analysts said earlier, providing upward momentum for global oils and grains prices. US soyaoil for March delivery climbed 0.7 percent in Asian trade hours ahead of the data.
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