Palm oil rises on anticipation of lower output, short covering

KUALA LUMPUR: Malaysian palm oil futures rose on Tuesday, driven by expectations of weaker production and short-covering activity.

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange gained 24 ringgit, or 0.59%, to 4,071 ringgit ($1,006.43) a metric ton at the close. On Monday, the contract snapped a four-session winning run.

The market recovered on signs the December output could be lower as more widespread rains are expected to fall in East Malaysia, specifically in the state of Sarawak, said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari.

The Malaysian Meteorological Department said on Monday a monsoon surge from January 1 to 5 has the potential to bring heavy rain in Sarawak, as well as strong winds and rough seas in the South China Sea.

“We are also seeing short-covering activities today ahead of the holidays,” Supramaniam said.

However, Supramaniam said the tapering demand, strength in the ringgit and record soybean crop in South America will cap gains.

Dalian’s most-active soyoil contract rose 0.51%, while its palm oil contract added 1.22%. Soyoil prices on the Chicago Board of Trade were up 0.02%.

Palm oil tracks price movements of rival edible oils, as it competes for a share of the global vegetable oils market.

Oil prices were little changed as investors took stock of dented hopes of a Russia-Ukraine peace deal and rising geopolitical tensions in the Middle East around Yemen.

Stronger crude oil futures make palm a more attractive option for biodiesel feedstock.

The ringgit, palm’s currency of trade, strengthened 0.32% against the dollar, making the commodity more expensive for buyers holding foreign currencies.