Palm Oil Gains as Malaysian Reserves May Drop on Output

Palm oil gained on speculation that stockpiles in Malaysia, the world’s second-largest producer, may drop as production extends a decline.

The contract for delivery in April advanced 0.3 percent to close at 2,559 ringgit ($825) a metric ton on the Malaysia Derivatives Exchange. Futures were little changed this week. Malaysia’s financial markets will be closed on Feb. 11 and 12 for the Lunar New Year festival.

Stockpiles in Malaysia probably fell 3.8 percent to 2.53 million tons in January from the all-time high of 2.63 million tons in December, according to a Bloomberg survey published Feb. 6. Production slumped 15 percent, the most since December 2010, to 1.51 million tons, the survey showed. The Malaysian Palm Oil Board, or MPOB, is due to release the data on Feb. 13.

“There may have been some buying ahead of the MPOB data as there’s speculation that end-stocks may be lower than 2.5 million tons,” said Paramalingam Supramaniam, director at Pelindung Bestari Sdn. in Kuala Lumpur. “Also, output in February may be lower by about 12 percent to 15 percent.” Output is typically lowest in the first two months of the year.

Futures also advanced due to short-covering ahead of the Lunar New Year break, said Paramalingam. Short-covering refers to investors reversing bets on declining prices.

Refined palm oil for delivery in September lost 0.4 percent to close at 7,088 yuan ($1,136) a ton on the Dalian Commodity Exchange. Soybean oil for delivery in the same month dropped 0.6 percent to end at 8,714 yuan a ton.

Soybeans for March delivery were little changed at $14.8775 a bushel on the Chicago Board of Trade, while soybean oil for March delivery fell 0.2 percent to 51.75 cents a pound. Soybean oil costs about 1.38 times the price of palm oil.