Palm oil holds near 10-year high on tight supply outlook, stronger Dalian

KUALA LUMPUR: Malaysian palm oil futures extended gains for a sixth day on Wednesday, peaking near a 10-year high on forecast of a deep cut in December supply and tracking strength in Brent crude oil and rival Dalian oil.

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange rose 65 ringgit, or 1.73%, to 3,820 ringgit ($952.62) a tonne by the midday break.

The contract hit its highest since Feb. 16, 2011.

Malaysia's palm oil stocks likely fell 23% month-on-month to 1.21 million tonnes at end-Dec due to higher exports and declining output, CGS-CIMB Research said in a note.

The forecast was in line with a Reuters survey on Tuesday pegging December inventories to tumble 22% to their lowest in more than 13 years, with production seen falling for a third consecutive month.

Palm prices will remain supported in January due to the projected low inventory and potential supply disruption from floodings in some parts of Malaysia, but supply is expected to recover in the second half of the year when weather normalises, said CGS-CIMB Research.

However, the current high prices may curb consumption, Adrian Kok, an equity analyst at Kenanga Investment Bank said in a note.

Dalian's most-active soyoil contract rose 1.5%, while its palm oil contract gained 2%. Soyoil prices on the Chicago Board of Trade were up 0.7%.

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

Brent oil prices rose to the highest since February after Saudi Arabia agreed to make bigger cuts in output than expected during a meeting with allied producers, making palm a more attractive option for biodiesel feedstock.

Capital Economics forecast palm to trade at 3,700 ringgit a tonne during the first quarter, and at 3,025 ringgit a tonne for the year.