Palm Oil Retreats From 17-Month High as Demand Seen Weakening

Feb 19, 2014 6:44 am ET

Feb. 19 (Bloomberg) -- Palm oil fell for the first time in six days on concern that the highest price in 17 months may weaken demand for the world’s most consumed cooking oil.

The contract for May delivery retreated 0.2 percent to close at 2,708 ringgit ($822) a metric ton on the Bursa Malaysia Derivatives. Futures jumped to 2,734 ringgit in intraday trading, the highest level since September 2012.

Futures rallied 27 percent from a three-year low of 2,137 ringgit in July on concern dry weather in parts of Indonesia and Malaysia, which account for more than 80 percent of global palm oil supplies, may curb production. Soybeans rallied to the highest since December today as drought scorched fields in Brazil, the world’s biggest exporter of the oilseed, crushed to yield an alternative oil to palm oil.

“Some traders are booking profits because of the overbought situation and this may continue for some time,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore Pte.

Palm oil’s 14-day relative strength index rose to 70.9 on Feb. 18 and was 69.31 today, close to the 70 level, which is a technical signal to some analysts that an asset’s price has risen too fast and is poised to decline.

Malaysia’s palm oil production in the first half is seen impacted by a lack of rainfall in some regions in June and July 2013, Hariyanto Wijaya, an analyst at Mandiri Sekuritas, unit of Indonesia’s largest bank by assets, said in an e-mail. Growth in output in Indonesia is not as good as previous years because of a lack of newly matured crop as new planting in 2010 was relatively small, he said.

Soybean oil for delivery in May fell 0.5 percent to 40.47 cents a pound the Chicago Board of Trade today after climbing 3 percent yesterday to the highest level at close for a most- active contract since Dec. 11. Soybean futures were little changed at $13.48 a bushel after jumping to $13.4925, the highest level since Dec. 10.

Refined palm oil for May delivery rose 1.3 percent to 6,078 yuan ($1,001) a ton on the Dalian Commodity Exchange. Soybean oil climbed 1.4 percent to 6,798 yuan.

--With assistance from Swansy Afonso in Mumbai. Editor: Thomas Kutty Abraham