Malaysian crude palm oil futures closed 1.3 percent higher on Tuesday, lifted by rising prices of rival soyabean oil but gains were limited by continued fears of swelling stocks due to a seasonal uptake in production.
Players kept a wary eye on financial markets as concern about a global credit crunch hit European shares again on Tuesday, despite sharp gains in Asia, while investors moved money from riskier assets.
The benchmark November contract on the Bursar Malaysia Derivatives Exchange settled up 30 ringgit, or 1.3 percent, at 2,396 ringgit ($685) per tonne. "The palm oil market has noticed that US soyabean oil prices have been going higher and this was a cue to move up as well," said a leading trader.
"But there is talk that production will rise by 20 percent for August, which is depressing the market a little." Other traded months rose between 18 and 38 ringgit.
Overall trade halved to 6,909 lots of 25 tonnes each from around 12,000 lots that change hands on a routine trading day. Soyabean oil futures on the Chicago Board of Trade rose in electronic trading during Asian hours, with the spot September contract up 0.26 cent at 35.25 cents per pound. Soyaoil usually lends support to the palm oil market because of common use in products ranging from confectioneries and cosmetics to bodiless.
Palm oil is still up 26.1 percent this year, despite plummeting 6 percent last week as credit fears battered regional bourses and began seeping into commodity markets. "Palm is keeping a close eye on the regional equity markets because there is talk that economic growth might still get impacted, which does not bode well for demand in the future," said another trader.
Asian vegetable oil demand has picked up from July as buyers from the Middle East to China lock in supplies for the festival season, especially for the Muslim holy month of Ramazan and the Chinese mid-Autumn festival, both due in September.
Exports of Malaysian palm oil products during August 1-20 rose 13.7 percent to 732,667 tonnes from 644,332 tonnes shipped between July 1 and 20, cargo surveyor Interlake Testing Services said on Monday.
Another surveyor, Society General de Surveillance said exports during the same period jumped 20.6 percent to 769,315 tonnes. But traders fear that surging demand might not keep up with growing palm stockpiles as the peak production season has begun.
Malaysia's palm oil production in August will rise more than 11 percent from last month due to a seasonal upswing, after a slowdown during the first half of the year, a top industry analyst said last week.
The Southeast Asian country is expected to produce 1.50 million tonnes of palm oil this month compared with 1.35 million tonnes in July said M.R. Chandran, an independent analyst and a former head of the Malaysian Palm Oil Association. Indonesia is considering subsidising cooking oil prices to make the vegetable oil affordable for the poor, Industry Minister Farm Iris said on Tuesday.