Further rise in CPO futures expected

Crude palm oil (CPO) futures traded on Bursa Malaysia Derivatives are expected to be higher next week, in tandem with the gains of other commodities such as crude oil and soyoil, said a dealer.

A continued increase in crude oil prices would boost CPO prices as it is used to produce bio-diesel, and demand for soya bean is also surpassing supply, he said.

Palm oil output in Malaysia, the second-largest producer, may decline between 2 and 3 per cent this year, as El Nino cuts yields, said Boon Weng Siew, president of the Malaysian Estate Owners Association, which represents small and medium-sized growers. The nation produced 17.6 million tons last year.

“That’s the first reason,” Joelianto, head of trading at Jakarta-based PT Sinar Mas Agro Resources and Technology, said by phone yesterday. Prices also gained as investors covered bets on declines, he said. Dry weather was forecast to persist in Sabah, Malaysia’s largest palm-oil-producing region, and other parts of the country through to May, the Meteorological Department said on March 12. The state accounted for 35 per cent of Malaysia’s output in the first two months of the year, according to data from the country’s Palm Oil Board.

El Nino, which reduces rainfall in Asia, may cause Malaysia to miss a government output forecast for palm oil of 18.1 million tons, Dorab Mistry, a director at Godrej International Ltd, one of India’s biggest vegetable oil buyers, said March 9. Output this year may be 17.2 million tons, Mistry said.

However, buyers will continue to be concerned over the rising US dollar as the CPO is traded in the greenback.

Experts told participants of the recent Palm and Lauric Oil Conference that CPO prices are likely to trade between RM2,800 per tonne and RM3,200 per tonne in the second-half of this year and the first-half of 2011.

Prices may rise to as much as RM3,300 in the first half of the year amid the drop in supply, Anne Frick, vice president for research at Prudential Bache Commodities LLC, said on March 8. The commodity may touch RM3,200 in the second half, Mistry said the following day. Still, producers in Indonesia and Malaysia tracked by OCBC Investment Research Pte Ltd may post higher output this month as the dry weather’s impact on yields won’t be felt until six months later, Carey Wong, an analyst at the bank, said by phone today. Wong didn’t identify producers.

For the week just-ended, the CPO futures settled weaker compared to the preceding week, although a rebound on Friday reduced losses.
On a Friday-to-Friday basis, the April 2010 contract shed RM40 to RM2,620, May 2010 slipped RM76 to RM2,583 and June 2010 declined RM66 to RM2,577.

The total weekly turnover increased to 95,505 lots from 63,055 lots last week, while open interests on Friday fell to 81,225 contracts from the 82,037 contracts previously.

On the physical palm oil market, March South slipped RM40 to RM2,630 per tonne