Malaysian palm oil futures hit their highest level in nearly 21 months on Friday and posted their biggest weekly jump in over four months on short-covering ahead of a long weekend and concerns over declining production. The palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange closed 1.7 percent higher at 2,575 ringgit ($619.74) per tonne, after rising as much as 2.9 percent to 2,604 ringgit, its highest level since May 16, 2014, earlier in the session.
Palm posted a weekly gain of 5.4 percent, its biggest since the week ended September 25, 2015. Traded volume stood at 56,077 lots of 25 tonnes each. "There was massive covering of both buy and sell towards the end," said a trader with a brokerage firm in Kuala Lumpur, referring to short-covering before the four-day weekend. Markets will be closed on February 8 and 9 for the Lunar New Year holidays. "The prevailing worry is that production this month is expected to be lower given the lesser number of working days. End-stocks of around 2.1 million tonnes are low enough for prices to further rally," said the trader.
Malaysian inventories in January are forecast to have declined 9.3 percent on month to 2.39 million tonnes, according to a Reuters poll. Production is also expected to have declined 14 percent to 1.2 million tonnes, in line with seasonal trend and as the dry weather impact from the El Nino weather event kicks in this year. The Malaysian Palm Oil Board (MPOB) is due to release January data on February 10. In competing vegetable oil markets, the US March soyoil contract gained 0.9 percent, while the May soybean oil contract on the Dalian Commodity Exchange rose 1.2 percent.
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