Malaysian palm oil futures rose about 1 percent to hit their highest in a week on Monday as strong export demand put the contract on track for a second straight session of gains. Tight market supply also supported palm's gains, traders said, with production growth weaker than anticipated.
"Palm is up due to strong demand coupled with weak supply," said a futures trader from Kuala Lumpur. "The market doesn't see strong double digits in terms of production (growth)." The benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange was up 1 percent at 2,662 ringgit ($618.64) a tonne at the close. It earlier rose to 2,681 ringgit, its highest since May 15.
Traded volumes stood at 43,548 lots of 25 tonnes each on Monday evening. Palm oil shipments from Malaysia, the world's second largest producer of the tropical oil, rose 20 percent between May 1 and May 20 from a month earlier, data from cargo surveyor Intertek Testing Services showed. Another cargo surveyor, Societe Generale de Surveillance, reported an 18.6 percent gain during the same time period on Monday evening. Exports for the full month of May are seen rising due to demand for Ramadan, the Muslim fasting month which starts at the end of May. During the holy festival, Muslims break day-long fasts with communal feasting, leading to higher palm oil usage.
While palm oil output is seen rising in line with the seasonal trend and as trees recover from damage caused by the El Nino weather pattern, production growth is not as strong as forecast, according to traders. In other related vegetable oils, soybean oil on the Chicago Board of Trade was up 0.2 percent, while the September soybean oil contract on the Dalian Commodity Exchange rose 0.7 percent. Palm oil prices are affected by rival edible oils such as soyoil, as they compete for a share in the global vegetable oils market. The September contract for palm olein rose 1.2 percent.