Palm oil firms on lower stockpiles, demand concerns cap gains

• The benchmark palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange closed to trade up 15 ringgit, or 0.64%, at 2,347 ringgit ($554.19).

KUALA LUMPUR: Malaysian palm oil futures ended slightly higher on Tuesday, helped by lower February stockpiles and a smaller-than-expected drop in March exports amid sustained worries over the coronavirus outbreak and the crude oil crash.

The benchmark palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange closed to trade up 15 ringgit, or 0.64%, at 2,347 ringgit ($554.19).

Malaysia's end-February palm oil stocks fell 4.2% from the previous month as increased domestic consumption exceeded an increase in output, according to data released by industry regulator the Malaysian Palm Oil Board.

March 1-10 exports fell between 2.4% and 3.5% from the month before, according to two cargo surveyors on Tuesday. Swiss cargo surveyor Societe Generale de Surveillance, however, reported a 3.6% rise in exports during the same period.

The market expected a 19% slump due to the coronavirus outbreak, said Sathia Varqa, owner and co-founder of Singapore-based Palm Oil Analytics.

Despite the bullish supply and demand figures, the market was hit by fears of demand falling due to the rapid global spread of the virus and a steep fall in crude oil prices, said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.

Weak crude oil futures make palm a less attractive option for biodiesel feedstock.

Palm oil took a beating on Monday, falling as much as 10% during the session as crude oil prices recorded their biggest daily rout since the 1991 Gulf War after top producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply.

But oil prices jumped 5% on Tuesday, clawing back some losses after Monday's 25% plunge, on hopes that a price war will not be sustained.

The market is concerned that the widening palm oil and gas oil spread will reduce funding required to sustain the biodiesel mandate programme in Indonesia, a key bullish factor for crude palm oil price this year, said Ivy Ng, regional head of plantations research at CGS-CIMB, in a note to clients.

Meanwhile, the ringgit, palm's currency of trade, fell 0.43% against the dollar, making the edible oil cheaper for holders of foreign currency.

Elsewhere, Dalian's most-active soyoil contract gained 0.15%, while its palm oil contract jumped 0.53%. Soyoil prices on the Chicago Board of Trade were trading 1.09% higher.

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