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Palm Oil Gains a Third Day as Drop in Output May Lower Reserves

Jan. 16 (Bloomberg) -- Palm oil climbed for a third day to the highest in more than a week on speculation that stockpiles in Malaysia may drop from a record as output falls and demand recovers in India and Pakistan.

The contract for delivery in March, which had the largest open interest, advanced 0.8 percent to 2,418 ringgit ($801) a metric ton on the Malaysia Derivatives Exchange, the highest level at close since Jan. 7. That helped trim losses to 0.8 percent this month.

Production in Malaysia, the largest grower after Indonesia, is typically at its lowest in January and February every year. Output dropped 5.9 percent to 1.78 million tons in December from a month earlier, while stockpiles reached an all-time high of 2.63 million tons, according to the nation’s palm oil board.

“The low-production season has already started,” Rajesh Modi, a trader at Sprint Exim Pte., said by phone from Singapore. “Demand is coming in as soybean oil and palm oil’s difference continues to be high. There’s continuous demand from India and Pakistan.”

Soybean oil’s premium over palm was at $324.48 a ton today, compared with a five-year average of $179.90 a ton, according to data compiled by Bloomberg. Soybeans for March delivery gained 0.5 percent to $14.205 a bushel on the Chicago Board of Trade. Soybean oil for delivery in March climbed 0.2 percent to 50.98 cents a pound.

“Sustained trade above 2,400 ringgit today indicates that buying is to continue,” Mohammad Ashraf Abu Bakar, a technical analyst at OSK Investment Bank Bhd., wrote in a report today. “Immediate resistance levels are anticipated at 2,435 ringgit, 2,450 ringgit and 2,470 ringgit, and the commodity has to get above all three levels to keep buying intact.”

Futures may rally to as much as 2,615 ringgit in the coming months, Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt. Ltd., said from Mumbai.

Refined palm oil for delivery in May increased 0.7 percent to close at 6,776 yuan ($1,090) a ton on the Dalian Commodity Exchange. Soybean oil for September rose 0.7 percent to end at 8,666 yuan a ton.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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