Malaysian palm futures jumped more than 2 percent in trade on Wednesday to a record high on news that Indonesia was considering a vegetable oil export tax increase and India was weighing options to cut its import duty.
The benchmark August contract on the Bursar Malaysia Derivatives Exchange was up 22 ringgit, or 0.8 percent, at 2,723 ringgit ($800) a tonne after giving up some of its gains at the end of the session.
"News from Indonesia and India is heating up the market," said a dealer. "And there is an awful amount of speculation and hedging even on the spot month, which is just pushing the market higher and higher." Palm oil which is largely used as a cooking oil but also in products ranging from margarine to bodiless has almost doubled since January 2006 on dwindling supplies and robust demand.
The market climbed as much as 2.3 percent to an intrude high of 2,764 ringgit a tonne, surpassing the previous historic high of 2,701 ringgit. "The market was a bit overdone in the and it took a well-needed breather. Over the next few days, the market will be volatile, like a rollercoaster ride," said another trader. Other traded months was up between 5 and 45 ringgit in overall trade of 6,748 lots of 25 tonnes each.
As prices were hitting the roof, Joint Asian Derivatives Exchange, collaboration between the Chicago Board of Trade and the Singapore Exchange, made its debut with US dollar-denominated crude palm oil futures on Wednesday. Singapore Exchange said trades for January 2008 contract was done at $747.50 a tonne on the first day of trading.
Indonesia, the world's second-largest producer, said on Tuesday it was considering raising the export tax on palm oil in a bid to stabilise cooking oil prices, but no decision had been made. India has said it was planning to cut vegetable oil import duties for the third time this year to rein in inflation.
But dealers said world's top buyers China and India could slow purchases in the coming months as surging prices start affecting consumption. "High palm oil prices would curb demand from China. Many Chinese importers have turned to soyaoil instead," said an analyst with a government think tank, China National Grain and Oils Information Centre in Beijing.
He estimated China's monthly palm oil arrivals would decline by 50,000 tonnes between June and September from the current average of 400,000-500,000 tonnes a month. Malaysian traders said the market might not be able to sustain higher levels if no decision comes out of the tax proposals from India and Indonesia. Exports of Malaysian palm oil products in May rose 3.4 percent to 1,178,086 tonnes, from 1,139,535 tonnes shipped in April, cargo surveyor Interlake Testing Services said.
Another cargo surveyor, Society General de Surveillance, said exports during the period rose 4.7 percent to 1,184,606 tonnes, from 1,131,100 shipped in April. State-run Malaysian Palm Oil Board will release may output stocks and export numbers on Monday. On the same day, cargo surveyors will unveil June 1-10 export numbers. In the physical market, crude palm oil for June shipment was quoted at 2,900/2,910 ringgit a tonne. Trades were done between 2,900 and 2,905 ringgit.