Malaysian palm oil futures edged down on Tuesday, but hovered near a one-and-a-half month high hit in the previous session on optimism that slackening output in the world’s second-largest producer may prevent a stock buildup in coming months.
Output growth this year has fallen short of forecasts. In September palm oil output rose a weaker-than-expected 10.2 per cent on month, and market players say October, the peak month, may only see a tiny increase before yields slow in November onwards.
Weaker output could keep stocks down in the fourth quarter of the year, when buyers in China and Europe usually cut back on purchases of palm oil during winter because the edible oil clouds in cold temperatures.
"At the moment exports look promising, but it could be lower next month onwards until December," said a trader with a foreign commodities brokerage. "But because production is not coming in heavy this year, I don’t think there will be a build up in stocks."
Prices could trade sideways between a close range of RM2,350-RM2,450, the trader added.
By the mid-day break, the benchmark January contract on the Bursa Malaysia Derivatives Exchange had edged down 0.1 per cent to RM2,434 per tonne, hovering near Monday’s high of RM2,446 — its highest since September 9.
Total traded volume stood at 11,962 lots of 25 tonnes each, slightly lower than the usual 12,500 lots.
Technicals showed that Malaysian palm oil faces a resistance at RM2,449 per tonne, but a break above this level will open the way towards RM2,491, Reuters market analyst Wang Tao said.
Two reports by cargo surveyors showed exports of Malaysian palm oil during October 1-20 rose three per cent and eight per cent compared to the same period a month ago, boosted by buying from Europe, China and Pakistan.
Traders say a group of millers in southern Peninsular Malaysia recently reported that production in the first half of October could have fallen two per cent, lifting hopes that end-stocks could stay below the 2 million tonne mark this year.
"There’s news from millers that production might go down this month," the Kuala Lumpur-based trader said. "If that really happens, then stocks won’t build up."
Palm oil inventories at end-September stood at 1.78 million tonnes.
In other markets, US crude oil fell below US$99 a barrel on Tuesday, hitting its lowest since July, with the discount to European Brent hitting its widest in six months as US crude oil inventories rose more than expected.
In competing vegetable oil markets, the US soyoil contract for December fell 0.3 per cent in early Asian trade. The most-active January soybean oil contract on the Dalian Commodities Exchange lost 0.8 per cent.-- Reuters