Palm oil rebounds as focus shifts to supply woes in top growers

PALM OIL bounced back as funds took a breather from massive selling triggered by the recent banking turmoil, with investors turning their attention to potential supply constraints in the world’s biggest growers.

The market is witnessing some normalcy after the US banking crisis started a wave of liquidation across commodities — from crude to edible oils, said Paramalingam Supramaniam, a director at Selangor-based broker Pelindung Bestari Sdn Bhd.

“Now that the funds have stopped selling, palm oil’s fundamentals are being reflected in the market,” he said. “We wouldn’t see a major meltdown in prices because stockpiles in Indonesia and Malaysia are very tight, while export figures are also good.”

There are concerns that Malaysia’s stockpiles could be squeezed this month due to the aftermath of monsoon floods in some parts of the country.

Some areas of Peninsular Malaysia are still grappling with lower fruit arrivals and worsening oil extraction rates, Paramalingam said. “Many mills are refusing to accept lower-yielding fruits and have requested refineries to reduce long-term commitments.”

Investors are also keeping a watch on growing weather risks in top growers Indonesia and Malaysia, with the region probably witnessing a shift from a La Nina weather pattern to El Nino this year.

Although the drought-causing El Nino could become palm oil’s next major price-booster, the gains wouldn’t take place until next year, according to Bloomberg Intelligence analyst Alvin Tai.

Palm oil futures rose as much as 1.5% to RM3,993 a tonne in Kuala Lumpur. Prices are still down 2.7% so far this week, and heading for a second week of declines. The world’s most-consumed edible oil has tumbled about 9% from its March high on uncertainty about demand from major-importing countries. – Bloomberg / pic TMR File