Malaysian palm oil futures rose on Tuesday to touch a fresh 18-month high after falling in the previous session, gaining support on concerns production will be affected in the rainy monsoon season. The benchmark palm oil contract for March on the Bursa Malaysia Derivatives Exchange gained 1.5 percent to 2,486 ringgit ($580.16) a tonne at the end of the trading day. The contract earlier hit 2,497 ringgit, its highest since June 26, 2014.
"The market is up on the back of floods in the east coast and persistent rains, as forecast by the meteorological department," said a trader based in Kuala Lumpur, referring to the eastern states in Peninsular Malaysia which face the South China Sea. Traded volume stood at 31,586 lots of 25 tonnes each at the closing trade.
The year end monsoon season brings heavy rains and floods across Southeast Asia and lowers palm oil output, making it difficult to gather fresh fruit bunches and disrupting supply chains. Inventories in Malaysia, the world's second-largest palm oil producer after Indonesia, are at an all time high of nearly 3 million tonnes. Lower production would help reduce current stockpiles and support prices. In competing vegetable oil markets, both the US January soyoil contract and the May soybean oil contract on the Dalian Commodity Exchange were up 1.2 percent and 0.8 percent, respectively.