Palm advancing to RM3,000 as dry weather bites

KUALA LAMPUR: Palm oil advanced to the highest level in more than 17 months onspeculation that inventories may decrease in Malaysia, the largest supplier after Indonesia, as output declines for a fourth month.

The contract for May delivery climbed as much as 2.2% to 2,795 ringgit ($854) a metric tonne on theBursa Malaysia Derivatives, the highest level for the mostactive contract since September 2012, and was at 2,793 ringgit at 5:11 p.m. in Kuala Lumpur. Futures are set for an 9.2% gain this month. 

Production in Malaysia dropped about 9% in the first 20 days of the month from the same period in January, said Paramalingam Supramaniam, a director at Pelindung Bestari, a Selangor-based broker, citing estimates from the Malaysian Palm Oil Association. Output fell to 1.51 million tonne last month and reserves shrank to 1.93 million tonne, Malaysian Palm Oil Board data show. The harvest is the lowest in January and February because of growing cycles. 

"Lower inventories of between 1.7 million to 1.8 million tonne are expected due to the lower production this month," said Arhnue Tan, an analyst at Alliance Investment Bank in Kuala Lumpur. "The cut to soybean crop estimates may increase dependency on palm oil, keeping stockpiles low." 

Output of soybeans, crushed to make an alternative oil, will be 4.4% less than earlier expected in South America after dry weather hurt crops in Brazil, according to Oil World. 

Prices rose on speculation that an El Nino weather pattern can occur later this year, impacting palm oil production, said Hiro Chai, vice-president at CIMB Futures in Kuala Lumpur. The El Nino, which can parch Australia and parts of Asia while bringing rains to South America, may occur in the coming months, Australia's Bureau of Meteorology said on Tuesday. 

Soybean oil for May delivery gained 1.2% to 41.34 cents a pound on the Chicago Board of Trade, while soybean futures lost 0.2% to $13.84 a bushel after reaching $13.885 yesterday, the highest since September 13. 

Refined palm oil for September delivery gained 0.5% to close at 6,240 yuan ($1,019) a tonne on the Dalian Commodity Exchange. Soybean oil ended little changed at 6,834 yuan.