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Palm Oil Drops, Set for Biggest Monthly Gain This Year on Weather Outlook
Palm oil futures are set for first monthly gain this year on speculation that supply from the world’s biggest producing nations may be less than expected on La Nina weather and as soybean oil climbed.
Prices have increased 5.6 percent this month, the biggest monthly advance since February. October-delivery futures fell 0.7 percent to 2,496 ringgit ($784) a metric ton at 4:39 p.m. on the Malaysia Derivatives Exchange as crude oil extended losses, erasing a gain of as much as 1 percent earlier.
Palm oil has rebounded 10 percent from a seven-month low on July 7 on speculation demand may rise among Asian countries and as weather threatens to disrupt output in the biggest producers. China, India, Pakistan and Indonesia mark important festivals in the quarter ending September, with communal meals stoking edible oils consumption.
“Weather has been the biggest concern for the market and it will remain so for a while,” Arhnue Tan, an analyst at ECM Libra Capital Sdn. “If La Nina indeed affects harvest, then we could see prices moving up.”
La Nina, which brings above-normal rainfall in Asia, can disrupt palm oil production in Indonesia and Malaysia, the top growers, and cause dry weather in North America, hurting soybean crops. Palm and soybean oils are substitutes and account for more than 60 percent of global edible oils supplies and demand.
Output is “highly likely” to fall short of expectations in the second half, providing strong support for crude palm oil prices, UOB Kay Hian Pte. said in a report on July 27.
‘Strong Demand’
“Demand for palm oil has been quite strong as well and the stockpile statistics from Malaysia for July will be a key factor in the coming weeks,” ECM Libra’s Tan said.
Palm oil stockpiles in Malaysia, the world’s second-biggest producer, touched a 10-month low of 1.45 million tons in June, the board said July 12. Shipments advanced 5.5 percent to 1.44 million tons last month, it said.
Exports dropped 4.1 percent in the first 25 days of July to 1,074,329 tons from the same period in June, surveyor Intertek said on July 25. Sales fell 0.9 percent to 1,103,439 tons, rival Societe Generale de Surveillance said.
“With demand still likely to outpace supply, industry watchers expect a draw down in inventory levels,” Carey Wong, an analyst at OCBC Investment Research in Singapore, said in a report today. “It is too early to say whether the La Nina phenomenon, which is causing heavier than usual rainfall in Asia, will persist until the end of the year.”
Soybean oil advanced 7.3 percent this month, the biggest monthly gain in five months. The vegetable oil’s premium over palm oil widened to $92.47 a ton from $91.8 yesterday, according to Bloomberg data. November-delivery soybeans rose as much as 0.8 percent to $9.955 a bushel.
CME Group Inc.’s October-delivery palm oil contract, pegged to the Malaysian benchmark price, fell 0.9 percent to $786 a ton. On the Dalian Commodity Exchange, January-delivery palm oil rose 0.3 percent to 6,740 yuan ($1,002) a ton, for a gain of 1.7 percent for the week. Soybean oil climbed 0.2 percent to 7,692 yuan a ton and posted a weekly increase of 0.9 percent.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
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