Its been a fickle last few weeks for palm oil. The commodity has witnessed some noteworthy lows and then some unexpected rebound in terms of price.
At the end of the previous month, palm oil prices recorded an eight-month low of $1012 per ton, the lowest since October 2010.
One of the key reasons fueling the bears in palm oil markets, was the eurozone worries and concerns over recovery of the global economy. The decline in palm oil prices was in step with the fall in agri-commodity markets seen of late.
Further reasons that plausibly lead to the decline in the commoditys prices were improving climatic conditions in oilseed-producing regions, which enhanced expectations of better supply of global vegetable oils.
At the same time, palm oil inventories are also believed to be sufficient, further dampening prices of the commodity. At the beginning of this week, Bloomberg reported the Malaysian Palm Oil Board as saying, "Inventory of palm oil, used mostly in food, climbed 6.8 percent in June from a month earlier to 2.05 million tons, the highest level since December 2009."
However, despite the consistent fall over the past five weeks since the beginning of June through July 1, palm oil prices took an about turn as they began rising again towards the end of the last week. This was based by multiple reasons, one among them being rising prices of crude oil. Rising prices of crude oil render bio fuelsl such as palm oil, more attractive, hence improving pumping up their prices.
At the same time, rising prices of palm oils alternate - soybean oil - have also revived investor interest in palm oil. "We see soybeans as likely to remain in a deficit in 2011-2012 on strong demand and acreage loss to corn," Bloomberg quoted the Goldman Sachs group last week.
With the rival seeming to ascend in the coming months of this year, palm oil is following suit as its preference as a substitute variety of edible oil increases.
Simultaneously, better than expected GDP growth rate in China in the second quarter also boosted demand expectations and helped palm oil prices inch up.
Going forward, these factors are likely to mitigate the effect of substantial inventory levels and keep palm oil prices elevated, though not exceptionally high. International media has quoted plantation companies as being confident that prices will stay above $1000 per ton in 2011. Seasonal impact of the upcoming month of Ramazan (August this year) will also keep up palm oil prices in the near future.