Malaysian palm oil futures climbed for a fifth straight day on Monday to their highest level in almost 15 months, as traders bet on increasing demand, lower supply and declines in the ringgit. By Monday's close, the benchmark December palm oil contract on the Bursa Malaysia Derivatives exchange was up 2.22 percent at 2,394 ringgit ($541.02) a tonne, up from a low of 2,302 ringgit hit in the morning session.
In afternoon trading, the benchmark touched 2,408 ringgit, its highest since July 2014. "This rally really was beyond our expectations," said a trader with a foreign commodities brokerage in Kuala Lumpur. "The currency factor is coming in right now." The depreciation of the ringgit, which has lost nearly a fifth so far this year, makes palm cheaper for offshore buyers, supporting demand. Recent smoke from forest fires in Indonesia was seen affecting oil palm production, the trader said.
"With the haze being so bad it's actually affecting the pollination of flowers," the trader added, and this was expected to reduce production of palm oil. Indonesia has faced criticism for failing to control forest fires on the islands of Sumatra and Borneo that have sent thick smoke across a swathe of Southeast Asia, pushing air pollution to unhealthy levels in Singapore, Malaysia and northern Indonesia. Expectations of seasonal increases in demand from India and China were also supporting prices, the trader said.
However, several traders said the trend may not last much longer. "My main worry will be because the market has appreciated a lot in a very short period of time, so tomorrow maybe some (companies) will initiate forced selling," another trader said. In competing vegetable oil markets, the US December soyaoil contract inched up 0.04 percent in late Asian trading. Oil prices fell on Monday, paring some of last week's 2 percent rally, despite evidence of slowing US production and a fourth weekly increase in US investor holdings of crude futures.