Malaysian palm oil jumps 2.6 percent

Malaysian palm oil futures jumped as much as 2.6 percent on Tuesday as traders focused on buoyant crude markets setting the stage for growing biodiesel demand. Although palm oil is less likely to be channelled into biofuels due to lack of government subsidies, aggressive mandates in Brazil and the United States may see more soyoil taken up, which leaves palm oil to dominate the food sector.
Palm oil has been volatile like most commodities as traders are trying to process whether rising crude oil, owing to the spreading Middle East unrest, will slow economic growth or fuel demand for feedstocks that can be converted into diesel. "Funds might be coming in. There is a lot of energy related buying going on in palm oil and other vegetable oil markets," said a trader with a foreign commodities brokerage.
The benchmark May crude palm oil contracton Bursa Malaysia Derivatives rose as much as 90 ringgit to 3,562 ringgit ($1,167.677) before settling at 3,546 ringgit. Overall volumes shot up to 24,896 lots at 25 tonnes each from the usual 15,000 lots traded. Reuters technical analyst Wang Tao said palm oil is expected to develop a second rebound towards 3,702 ringgit per tonne based on its wave pattern. Palm oil may still hit 4,000 ringgit on tight stocks in the immediate terms and as competing soyoil gets channelled into the biofuel sector, leading analyst Anne Frick from Prudential Bache Commodities said.
Some in the market agreed with her view, noting that palm oil production could start to recover from March or April onwards, easing the tight stock situation that started in the last quarter of 2010 as erratic weather hurt yields. "February production in Malaysia is likely to be flat or 1-2 percent higher but we are still generally in a tight situation," said another trader in Kuala Lumpur. "On the 4,000 ringgit level, it might be hard but crude oil around $100 can change everything." Brent crude oil futures rose above $112 a barrel on Tuesday, supported by worries that continued unrest in the Middle East and North Africa could threaten supplies even as Saudi Arabia ramped up output to cover disruption to Libyan exports.