Palm oil bounces back, hovers near 5-month high on supply concerns

KUALA LUMPUR: Malaysian palm oil futures recovered from early falls on Tuesday to hover near a five-month high hit in the previous session on supply worries due to lower production forecast.

The benchmark palm oil contract for October delivery on the Bursa Malaysia Derivatives Exchange gained 0.19pc to 2,666 ringgit by the midday break, after falling as much as 1.23pc earlier in the session.

Palm rose nearly 1.8pc and closed at its highest since Feb. 13 in the previous session.

"Supply worries is driving prices," said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd. July 1-20 production in Malaysia is showing a decline of about 5pc, he said.

Heavy rains and flash flood in top producers Malaysia and Indonesia this month had fuelled worries about disruption to harvesting.

Malaysia is losing up to 25pc of its potential palm oil yield due to a labour shortage that is expected to worsen in the coming months, the Malaysian Palm Oil Association said on Monday.

"We are inclined to believe that this rally has more legs, as August production is also expected to remain nonchalant," Paramalingam added.

Malaysia's palm oil exports for July 1-20 fell between 3.5pc and 4.6pc from the previous month, cargo surveyors said.

Dalian's most-active soyoil contract fell 0.58pc, while its palm oil contract slipped 0.98pc. Soyoil prices on the Chicago Board of Trade were up 0.13pc.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.

Palm oil is due for a correction, as it is near a strong resistance at 2,700 ringgit per tonne, Reuters technical analyst Wang Tao said.