The benchmark three-month crude palm oil (CPO) futures traded on the Malaysian Derivatives Exchange hit a four-month high of RM2,590 per tonne yesterday, following rival soybean oil’s rally over the past six weeks.
The benchmark CPO futures for October delivery rose RM28 to RM2,590 per tonne, after trading between RM2,580 and RM2,598 throughout the day.
The futures contract has rallied about RM340 per tonne or 15.1% from a seven-month low of RM2,250 per tonne.
“Soybean oil price is pulling CPO up,” said an analyst covering the sector.
Commodity prices have been rallying in recent weeks due to hot weather conditions globally as well as the weakness in the US dollar. Soybean oil prices have risen as concerns over hot weather in the US may increase stress on plants developing pods, and affect yields.
However, Jim Teh, senior palm oil trader at Interband Group, pointed out that trading volumes of CPO futures were thin, suggesting that market support for the current high prices may not be very strong.
“This shows that the fund managers are not in the market trading the futures,” he said.
Low trading volumes could also suggest investors are not willing to take a view in a big way, as weather conditions — and commodity prices — are volatile.
A total of 7,218 lots for the October futures contract were traded yesterday. August and September futures saw 652 lots and 2,075 lots changing hands, respectively.
One lot of CPO futures contract represents 25,000 tonnes of the edible oil.
Teh said the average trading volume of the benchmark three-month CPO futures contract was quite low compared to about 15,000 lots per day in the first half of 2009.
Trading volume for the contract over the last two weeks up to July 30 averaged about 9,900 lots per day.
Teh pointed out that Malaysian stockpiles of CPO were high at 1.45 million tonnes as at June 30, although they were down 7.1% from the previous month.
He said 1.2 million to 1.3 million tonnes were more comfortable stock levels. Economic growth was easing in the major consuming regions of Europe and China, he added.
Part of the reason for the rise in CPO futures, he said, was “a play in crude oil due to the weakening US dollar”. Soybean oil has been on a general uptrend since its nine-month low of 36.25 US cents per pound on June 29.
As of market close in Chicago on Tuesday, the three-month soybean oil futures ended at 41.68 US cents per lb. From its recent lows, soybean oil has rallied 15%, on par with CPO’s 15.1% gain, suggesting they are tracking each other.
However, in US dollar terms, palm oil has rallied more strongly than soybean oil (which is denominated in US dollars), as the ringgit has strengthened considerably in recent weeks, hitting a two-year high versus the greenback. A stronger ringgit will make palm oil less attractive, in US dollar terms.
The rally in soybean oil prices comes amid hot weather conditions in the US, but also bumper harvests in South America.
The plantation analyst noted that recent bumper harvests of soybean in South America had not dampened the edible oil’s prices.
Argentina, the world’s largest exporter of soybean oil, has reported a record harvest of 55 million tonnes of soybeans this year.
“There is a bumper harvest, but about 60% to 70% of the value of soybean comes from non-oil uses. With soybean meal prices being quite low now, the crop is not being crushed,” he said. Soybean meal, a byproduct of the oil production, is used for animal feed.
There are also domestic fundamental reasons to support CPO prices.
The early part of this year saw a dry spell from the El Nino weather phenomenon, which is expected to dampen oil palm harvests in the second half of the year, said the analyst. El Nino typically gives way to La Nina, which results in excessive rainfall.
Malaysian-listed plantation counters remained largely unchanged yesterday, despite the rally in CPO prices. Most stocks traded within a narrow margin of less than 0.5%. The exception was Genting Plantations Bhd which rose nine sen or 1.29% to RM7.19.
Sime Darby Bhd fell two sen or 0.26% to RM7.70, IOI Corp Bhd rose one sen or 0.2% to RM5.12, Kuala Lumpur Kepong Bhd was unchanged at RM16.88, Hap Seng Plantations Holdings Bhd gained one sen or 0.44% to RM2.30, and IJM Plantations Bhd added one sen or 0.4% to RM2.46.
by Loong Tse Min
No comments:
Post a Comment