Palm Set for Biggest Weekly Gain in Three Years as Supply Drops

By Ranjeetha Pakiam - Nov 1, 2013 5:03 PM GMT+0800

Palm oil traded in bull market territory, poised for the biggest weekly gain in almost three years, on speculation that rain may have reduced production in top suppliers Indonesia and Malaysia.

The contract for delivery in January advanced as much as 1.2 percent to 2,624 ringgit ($828) a metric ton on the Bursa Malaysia Derivatives, the highest level for futures since September 2012. A close at 2,601 ringgit would be a 20 percent rebound from the 2,167 ringgit settlement on July 29, meeting the common definition of a bull market. Palm was at 2,621 ringgit at 4:58 p.m. in Kuala Lumpur, heading for the first annual gain in three years.

Futures are poised to rise 7.2 percent this week, the biggest weekly gain since December 2010, on expectation that the monsoon season that usually starts this month would slow supply. While palm oil is produced year-round, output peaks from July to October in Malaysia. Several major plantations reported that production unexpectedly declined 7 percent to 10 percent in the first 10 months because of rain and the growing cycle, according to Derom Bangun, chairman of the country’s palm oil board.

“It’s a combination of lower stocks and lower-than-expected production year-to-date from Indonesia,” Ivy Ng, an analyst at CIMB Investment Bank Bhd., said by phone from Kuala Lumpur. “The third quarter is the peak-production season and the fact that it’s not matching last year’s production has gotten people a bit excited, coupled with the fact that stocks are much lower.”

Malaysian Stockpiles

Inventories in Malaysia may be at 1.83 million tons last month, Ng wrote in a report today, lowering her earlier estimate by about 3 percent. That’s 27 percent less from a year earlier and the lowest level for October since 2010, according to data from the nation’s palm oil board. Prices soared 12 percent in October 2010 and extend gains through January 2011.

The commodity tumbled into a bear market in June 2012 as growth in production outpaced demand. Output in Indonesia may rise to a record 31 million tons in the 2013-2014 marketing year, while Malaysia’s output will remain unchanged at 19 million tons, according to the U.S. Department of Agriculture. World output will advance 5 percent to 58.1 million tons, boosting stockpiles by 17 percent to an all-time high of 9.2 million tons, it says. READ MORE