Malaysian palm oil futures rebounded more than 2 percent on Thursday as investors covered short positions on expectations of lower production this month and a recovery in crude oil, traders said. "People are talking about an economic recovery as crude oil went up. More demand is coming as we are moving into the festive season," said a trader at a Kuala Lumpur-based brokerage.
The benchmark October contract on Bursa Malaysia's Derivatives Exchange ended up 55 ringgit, or 2.24 percent at 2,515 ringgit ($716.52) a tonne after going as high as 2,521 ringgit. Overall volume was 20,657 lots of 25 tonnes each, more than double the usual 10,000 lots.
The market was also supported by talk on Thursday of lower-than-expected production in August compared to July, as drier weather may affect yields in palm oil production in Sabah, one of Malaysia's key palm oil growing areas, another trader said. "People are saying that production may be down about 10 percent this month because of the weather," the trader said. "This is serious if it turns out to be real because we should be in a higher production month," he said.
Traders said the stock level may drop further this month as demand is gaining support from the upcoming Asian festivals starting with the holy month of Ramadan in the second half of August. Malaysia's July palm oil stock level of 1.33 million tonnes was lower than the 1.4 million tonnes seen as needed for the processing industry to function normally. Oil rose back above $71 a barrel on Thursday after positive economic news from the United States and Europe's two largest economies, despite data showing US crude inventories rose much more than expected last week.
INDONESIAN PALM OIL: In Indonesia, the Jakarta-based state marketing centre sold palm oil at a top price of 7,635 rupiah ($0.770) per kg against 7,509 rupiah on Wednesday. Producers in Medan, home to Indonesia's main palm oil export port of Belawan, sold crude palm oil at 7,660-7,661 rupiah a kg, up from 7,500-7,550 rupiah a kg on Tuesday. Producers in Medan did not hold any auction on Wednesday. Refiners in Jakarta offered refined, bleached, deodorised (RBD) palm oil, used as cooking oil, at 7,700 rupiah per kg against 7,550-7,600 rupiah per kg on Wednesday.
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