Malaysian palm oil futures rose on Wednesday as crude oil prices of well above $100 a barrel raised the appeal of the edible oil's use in biofuels at a time when heavy rains are disrupting some supply. Traders are also watching for more decisive action at the eurozone summit on Friday to resolve the region's debt crisis that has dragged palm oil prices down 18 percent so far this year.
But many market participants are shifting their focus to better technicals in palm oil futures as well as output declining from November onwards due to monsoon rains and a seasonal decline in yields. "The market had come off a little in the past few days and it is holding up at 3,100 ringgit due to the strength in other commodities markets, especially crude oil," said a trader with a foreign commodities brokerage in Kuala Lumpur.
Benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange settled up 1.1 percent to 3,119 ringgit ($990) per tonne. Overall traded volumes stood at 15,411 lots of 25 tonnes each, much lower than the usual 25,000 lots as more investors turned cautious and waited on the sidelines.
On Monday, prices hit a two-week high on reports of flooding in some areas of the world's second largest palm oil producer Malaysia. The Malaysian Meteorological Department said heavy rains in the key oil palm growing state of Sabah will persist till later in the day, causing flash floods. Sabah, on Borneo island, accounts for a quarter of national production. Heavy rains and floods can disrupt the supply chain but gives much needed moisture to water loving oil palm.
Excessive rains, however, can affect the oil yield quality and force palm oil firms to sell the edible oil at a discount. So far, however, planters have not reported major logistics disruptions. "It's just been a good mix of rains and sunshine in Sabah. That's actually very good for production. Some harvesting is disrupted but its not bad," said a planter in Sabah. China's most active May 2012 soybean oil contract closed up 0.4 percent.