Palm oil futures edged up on Wednesday as the discount of the tropical oil to competing soyoil widened, raising hopes of stronger demand, although there was caution over the impact of China's rate hike. China's fourth interest rate hike since October, announced on Tuesday, has raised concerns of slower demand, but some traders say the move signals the strength of the economy and consumption patterns in coming months.
"Earlier in China's interest rate hike cycle, there would have been a sell-down in commodities and vegetable oil markets," said a trader with a foreign brokerage in the Malaysian capital. "This is not the case as palm oil is now trading at a wide discount and there should be demand coming in," the trader said. The benchmark June crude palm oil contract on the Bursa Malaysia Derivatives Exchange settled up 0.3 percent, or 10 ringgit, to trade at 3,376 ringgit ($1,115) a tonne after see-sawing in choppy trade.
Overall traded volume rose to 23,473 lots of 25 tonnes each, compared to the usual 15,000 lots. Some traders said the big planters and refiners in Malaysia and Indonesia were on the sidelines to watch external markets before taking positions. Technicals are turning more positive. Reuters analyst Wang Tao said palm oil is accumulating strength for a rise towards 3,470 ringgit per tonne, as it has broken above a trendline resistance at 3,365 ringgit.
After benchmark palm oil futures lost 12 percent in the first quarter on expectations of stronger production, cash palm olein prices are trading at a $200 discount to soyoil from Argentina - the world's largest exporter. Palm oil's supply scenario may further weigh on prices. Malaysian production could hit double digit growth in March, traders said. Reuters will issue Malaysia's March production, stocks, and export poll on Thursday. US soyoil for May delivery gained 0.4 percent, reversing earlier losses notched on the China rate hike move and the incoming South American soy crop.
China's most active September 2011 soyoil on the Dalian Commodity Exchange ended up nearly 1 percent on Wednesday, playing catch up with overseas markets after domestic markets were closed for the two-day Qingming, or tomb sweeping festival. "The impact of the interest rate hike is not as great as last year, as traders know that its going to be a long term fighting tool with inflation - most likely for the whole year," said an oil analyst in Shanghai.