Malaysian palm oil futures bounced back on Monday from a low last hit in October last year, supported by firm crude prices, although investors expect further weakness due to a higher output cycle in the second half. The benchmark September crude palm oil contract on Bursa Malaysia Derivatives closed 0.5 percent higher at 3,050 ringgit ($1,013) a tonne, after earlier touching a high at 3,084 ringgit.
Traded volume for the September contract was thin at 11,449 lots of 25 tonnes each, versus 14,526 lots on Friday. "The market today is pretty firm," said one trader, adding the longer-term outlook is patchy. "Everybody sees the second half (of 2011) as a bit bad, but it will depend on the macro economy. If we have any supply problems then the market will stay put."
On Friday, palm oil futures hit 3,031 ringgit - the lowest level since October 27 last year - tracking falling overseas markets after key US data showed higher-than-expected crop prospects and stock levels. ICDX's September CPO futures contract was at 8,840 rupiah per kg, compared to 8,910 rupiah per kg when it opened. Market volume was 2,420 lots of 10 tonnes each.
In other vegetable oils, the most active January 2012 soyoil contract on China's Dalian commodity rose. "The trade was caught is a tight-range with almost all news (and) rumours pencilled in," said another Malaysia-based trader. "However we did notice strong headwinds close to 3,080."
"Failure to trade above that triggered more selling pressure at about the closing bell." US crude steadied on Monday, supported by gains in the Asian stock market, while Brent crude edged lower due mainly to a warning by credit agency S&P of a potential default by Greece.
Palm oil prices fell almost 20 percent in the first half of this year, pressured by expectations for stocks to soar above 2 million tonnes at a time when output in Southeast Asia is growing and overseas demand is likely to slow. "I did expect to see some upward correction as crude oil recovered," said one Malaysia-based analyst. "People already priced in a lot of palm oil production growth, so any downside risk will either come from corn, soy or the crude oil price."
"I don't see a lot of downside risk from palm at these levels," he added. "It will probably go down a bit, in line with inventories that will grow, but I don't see it staying at 2,800-2,900 for very long." Markets in the United States are shut on Monday for a national holiday.
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