Palm Posts Biggest Weekly Gain Since November as Supply Drops

Feb 14, 2014 5:29 am ET

Feb. 14 (Bloomberg) -- Palm oil capped the biggest weekly gain in three months on concern that falling output in Indonesia and Malaysia will trim global inventories of the commodity used in everything from noodles to detergents.

The contract for April delivery advanced 0.4 percent to 2,666 ringgit ($807) a metric ton on Bursa Malaysia Derivatives, the highest price at close for the most-active futures since Dec. 6. Futures gained 3.4 percent this week, the biggest increase since the five days ended Nov. 15.

Futures jumped 25 percent from a three-year low of 2,137 ringgit in July as production fell last year for the first time since 1998 in Indonesia, the world’s largest supplier, and reserves shrank in Malaysia. A rally in soybean oil on concern that dry weather in Brazil will hurt the crop, is also fueling gains, said Alvin Tai, an analyst at RHB Investment Bank Bhd. Soybean and palm oils are substitutes in food and fuel use.

“Lower Indonesian inventories should help market and the implementation of the biodiesel program should help accelerate the inventory drawdown,” Tai said by phone from Kuala Lumpur. “People are more comfortable with the Malaysian inventory data as it shows that it has started to decline.”

Stockpiles in Indonesia probably shrank to 1.86 million tons in January, the lowest since June 2012, as production fell for a second month, according to a Bloomberg survey. The Southeast Asian nation in September raised biodiesel blending in fuel to 10 percent from 7.5 percent and for power plants the requirement was raised to 20 percent last month.

Weather Concerns

Dry weather in parts of Indonesia may impact palm oil crop from the second quarter and help gain in prices, Tai said. “We are seeing some hot spots in Sumatra in the past week, but the first quarter is usually the low-crop season so people will not be overly concerned yet,” Tai said.

Some parts of Malaysia have been experiencing unusually dry weather and could impact rice cultivation, the country’s weather forecaster said in a monthly report today. Palm oil inventories in Malaysia fell to 1.93 million tons in January, the lowest since October and 27 percent less than the record 2.63 million tons reached in December 2012.

Soybean oil for delivery in May was little changed at 39.86 cents a pound on the Chicago Board of Trade. Futures are poised for a third weekly advance on concern dry weather in Brazil, the world’s largest soybeans exporter, will damage the crop. Soybeans traded 0.6 percent higher at $13.38 a bushel.

Refined palm oil for May delivery advanced 1.5 percent to end at 6,018 yuan ($992) a ton on the Dalian Commodity Exchange. Soybean oil rose 1 percent to close at 6,744 yuan.

--Editor: Thomas Kutty Abraham