Business

Tuesday February 21, 2012

Palm oil price hits 8-month high

By LEONG HUNG YEE
hungyee@thestar.com.my


The commodity is supported by tight supply and rising demand from China

KUALA LUMPUR: Crude palm oil (CPO) futures price hit RM3,260 per tonne, the highest in more than eight months but finished short of the intraday high buoyed by higher soy bean prices.

At 5pm yesterday, CPO for third-month delivery was up RM11 to RM3,253.

A trader said the commodity was fundamentally supported by the tightness in supply and escalating demand, particularly from China.

The country had reportedly purchased a record amount of oilseed from the United States. China cut its reserve requirement ratio for the first time this year in a move to boost liquidity and stimulate economic growth, improving demand prospects for the edible oil.

“The damage on soybean crops from the recent drought in the United States has aggravated global supply problem. We believe CPO prices to be sustained beyond first quarter as we will see substitute demand for palm oil to offset shortage of soybean oil,” a trader said.

Analysts however, remained optimistic that CPO prices in the short term could see an upside as CPO is still the world's most tradeable edible oil with continued strong demand in India and China.

OSK Research said palm oil price staged a technical breakout last Friday. It opined that palm oil price would head higher to RM3,465 in the medium term.

“We continue to believe that CPO price will see an upcoming lull due to abundant supply this year, before starting on a structural uptrend in late 2012,” OSK Research said in a separate report.

Malaysian Palm Oil Council deputy CEO Dr Kalyana Sundram had said that CPO price would fluctuate but was not likely to drop below RM3,000 per tonne as demand for CPO would stay robust due to rising consumption

He said the demand for palm oil would likely outstrip supply as population rose, adding that the average price of RM3,000 was also buoyed by favourable weather which impacted production positively.

Palm oil production for 2012 is forecast at 19.3 million tonnes, an increase of 2.1% from 2011 while exports are projected to increase by 112,000 tonnes to 18.1 million tonnes.

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