Malaysian palm oil futures ended slightly higher in a shortened session on Wednesday, tracking US soy markets ahead of the Lunar New Year break, but the prospect of bigger yields at a time of sluggish demand stopped prices going much higher. Malaysian markets closed for the holiday after the morning session on Wednesday and will reopen on Monday.
At the close, the benchmark May contract had edged up 0.6 percent to 2,300 ringgit ($640) per tonne, with prices trading narrowly between 2,289 and 2,312 ringgit. The contract added 0.7 percent on the week after falling nearly 3 percent last week. Many investors are already away and volume was low during the morning, with only 10,933 lots of 25 tonnes traded against the usual average of 12,500 lots.
Monsoon flooding in December and January cut crude palm oil production in the No 2 grower to its weakest in four years last month, but industry players warn that ample soil moisture might soon lead to a strong recovery in yields. Traders say dwindling demand from major buyers, as shown by cargo surveyors' data on palm shipments, may lead to a build-up in Malaysian stockpiles and put downward pressure on prices.
"Yesterday soybean oil rebounded a bit and today the (palm) market consolidated a bit higher before the long break," said a trader with a foreign commodities firm in Kuala Lumpur. "But sentiment is changing to become weaker because of the slowing demand and higher production in the coming months." Technical factors showed palm oil was expected to break support at 2,261 ringgit per tonne and fall to 2,232 ringgit, as indicated by its wave pattern and a Fibonacci retracement analysis, according to Reuters market analyst Wang Tao.
In other markets, oil prices dipped on Wednesday after gaining more than 1 percent in the previous session, but trading was thin in Asia. The US soyoil contract for March gained 0.3 percent in early Asian trade. Chinese markets have closed for the New Year holiday and will reopen on February 25.