Malaysian crude palm oil hit a new 33-month high on Monday as robust demand chases tightening supplies and investors continue to place bets on commodities after a strong performance last year. Palm oil prices, which rose 42.2 percent in 2010, are underpinned by heavy rains lashing oil palm estates in Malaysia and Indonesia and dry weather in soyaoil-producing Argentina.
Traders said demand for palm oil will lift prices as China stocks up for the Lunar New Year holidays in early February and other Asian countries need to top up their inventories. "Short term, there is bullish potential for palm oil and 4,000 ringgit is not a far-fetched idea," said a trader with a foreign commodities brokerage. "Demand is set to recover for palm oil and even in a quiet month like December, there are indications that buying will rebound," the trader added. The benchmark March 2011 crude palm oil contract on Bursa Malaysia Derivatives rose almost 2 percent to 3,861 ringgit ($1,249) per tonne, a level unseen since March 2008, before settled at 3,852 ringgit ($1,249.230).
Overall traded volumes almost doubled at 14,768 lots of 25 tonnes each, compared with the usual 15,000 lots after the long-weekend. Heavy rains lashed mainland Malaysia's east coast over the weekend, bringing floods to some areas within a key oil palm producing state of Pahang although traders said there was no immediate impact.
But the prospects of floods have lifted palm oil prices and offset declining palm oil exports although the pace of the fall has slowed in December, which signals a recovery is on the cards. Cargo surveyor Intertek Testing Services reported a 15 percent drop in Malaysian palm oil exports for December compared with declines of up to 24 percent for December 1-15 with China leading the recovery.
A Reuters analysis showed Malaysian palm oil is poised to rally to 4,247 ringgit per tonne in the first quarter, as per its wave pattern and a Fibonacci projection analysis. "Investment money is likely to be another driver for palm oil, since the agriculture complex did well last year. Also there is strong weather play across the world to back up the argument," said another Malaysian trader.
Commodities hit multi-month highs at end 2010 as expectations of a further recovery in the global economy supported investor appetite for risk heading into 2011. Crude oil rising above $91 helped vegetable oil markets and traders say a spike above $100 a barrel may add fuel to a rally in palm oil and soyaoil markets. US soyaoil for January delivery edged 0.1 percent higher in Asian trade hours as earlier supply-driven gains were erased by the stronger US dollar. But floods in Australia boosting grain prices and persistent dryness in soya-producing Argentina helped to support vegetable oil markets. China's agriculture markets were shut on Monday for public holiday and will reopen the following day.