Malaysian palm oil surged to a record high on Wednesday, gaining close to 2 percent, as surging demand for food and fuel amid fears of falling production raised concerns about the supply outlook next year.
And traders said prices of palm oil, used in products ranging from cosmetics and confectionaries to biodiesel, could rise further eary next year as fears of reduced soy plantings in the United States lift soybean prices to 34-year highs. "It is mainly soybean oil which is pushing up the market and crude oil is also inching up," said a trader with a domestic brokerage.
By the midday break, the benchmark March contract on the Bursa Malaysia Derivatives Exchange was up 48 ringgit at 3,078 ringgit ($923) a tonne. Minutes before that, it hit 3,080 ringgit, surpassing the previous high of 3,068 ringgit it hit in November.
And in the physical market, crude palm oil for December and January shipments in the southern region was quoted at 3,070/3,080 ringgit a tonne. Trades were done between 3,050 and 3,070 ringgit. Palm oil has risen more than 50 percent so far this year, while soy oil prices have surged close to 62 percent.
World vegetable markets are getting increasingly jittery about securing enough US soybean acres next spring after a short crop in 2007 as it competes with corn, demand for which is surging because of the country's insatiable appetite for ethanol.
FLOODS, SOYOIL PRICES: Also adding to the woes are recent floods in Malaysia, tightening supplies in the physical market. "We expect things should get better in the coming days but as of now the supply is still very tight," one trader said from Johor, a key palm oil producing state in southern Malaysia which was inundated by monsoon floods.
The market also ignored bearish Malaysian palm oil export data from leading cargo surveyors. "Exports are down but I think soybean oil is a big factor and the market is kind of ignoring the export numbers," another trader said.
Cargo surveyor Intertek Testing Services said Malaysian palm oil exports during December 1-25 fell 0.8 percent to 1,117,521 tonnes from 1,126,683 tonnes shipped between November 1 and 25. Another cargo surveyor, Societe Generale de Surveillance, is due to release its numbers later on Wednesday. Leading industry analyst Dorab Mistry said last month palm oil could rise ahead of Chinese New Year on the back of increased demand, and there was a possibility of great upside for prices in the second quarter of next year because of lower stocks.
Shares of palm plantation firms have hit new highs on bullish prices, led by sector bellwethers Sime Darby, IOI Corp and Kuala Lumpur Kepong. Malaysia's plantation index has risen almost 80 percent this year. Vegetable oils such as palm and soybean oil often track crude oil prices because of growing use of edible oils in the making of biofuels, which compete with petroleum.
Soybean futures at the Chicago Board of Trade closed higher on Monday on follow-through technical buying after notching a 34-year top overnight. January soyoil closed 0.31 cent firmer at 47.46 cents per lb.
Oil was steady above $94 a barrel on Wednesday, although Mexican export terminals reopened following a cold front that had helped fuel pre-holiday gains. US light, sweet crude for February delivery was 34 cents higher at $94.47 a barrel by 0520 GMT after gaining 82 cents on Monday.
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