Monday, February 22, 2010



Crude palm oil futures on Malaysia’s derivatives exchange ended higher Monday, snapping a two-day losing streak and rising to their highest level in six weeks amid a broad-based rally across most asset classes, said trade participants.

The benchmark May CPO contract on the Bursa Malaysia Derivatives ended MYR35 higher at MYR2,631 a metric ton after rising to an intraday high of MYR2,638/ton, its highest level since Jan. 11.

Soyoil futures on the Chicago Board of Trade traded higher during Asian hours, rising 30 points to 38.82 cents a pound by the end of trade on the BMD.

Tightness in CPO supply also kept prices above the psychological level of MYR2,600/ton, said a Kuala Lumpur-based trading executive.

Many traders said February output may have declined by 10% on month and may lead to a further drawdown in palm oil inventories from 2 million tons in January.

“Investors also ignored lower palm oil export data as supply tightness and lower output will offset the weakness in demand,” said a Kuala Lumpur-based analyst.

Cargo surveyor Intertek estimated that palm oil exports during the first 20 days of February fell 8.6% on month to 844,865 tons. Another surveyor, SGS (Malaysia) Bhd., put exports at 865,593 tons for the same period.

Some trade participants said the uptrend will likely continue, but others pointed out that palm oil’s discount to soyoil has narrowed significantly, which may prompt buyers to switch to soyoil.

“The discount to soyoil has fallen to around $40/ton from $140/ton, when palm oil prices rose to around MYR2,700 levels during the December-January period,” said a Kuala Lumpur-based broker.

Palm oil, used for food and as feedstock to produce biodiesel, may ease from its highs as dwindling demand for palm-based biodiesel may lead to a domestic biodiesel supply glut and place pressure on the BMD.

Exports of palm-based biodiesel to the U.S. dwindled in 2009 and may decline further as the U.S. Environmental Protection Agency has yet to determine whether palm oil based biodiesel complies with a 50% greenhouse-gas savings requirement needed to benefit from a U.S. government mandate.

Until the EPA is able to determine whether palm-based biodiesel, or palm methyl ester, meets the greenhouse gas savings target, “palm biodiesel can’t be sold to the U.S. and we would miss the whole summer season, when palm biodiesel is the most popular choice,” said T.C. Long, managing director at Vance Bioenergy Sdn Bhd. Palm-based biodiesel tends to thicken in cold weather due to a high melting point, so sales tend to slow during the winter months.

The EPA said it hasn’t had sufficient time to complete a lifecycle greenhouse gas impact assessment for palm methyl ester, grain sorghum ethanol and woody pulp ethanol, and it may be another six months before it can determine whether they meet the minimum 50% greenhouse gas savings rate for RFS2 biomass-based diesel.

Toughening environmental criteria from major biodiesel markets such as Europe and the U.S. could cripple the industry, as the “non-trade barriers that are currently in place or may be implemented in Europe and the U.S. have made exports of palm methyl ester (PME) from Malaysia increasingly difficult,” Long said.

In the cash market, palm olein for April/May/June delivery traded at $802.50/ton and $805/ton, said a Singapore-based trader.

Cash CPO for prompt shipment was offered MYR40 higher at MYR2,650/ton.

Open interest on the BMD was 81,398 lots Monday, up from 77,109 lots Friday. One lot is equivalent to 25 tons.

Some 11,203 lots of CPO were traded versus 11,910 lots Friday.

Closing BMD Crude Palm Oil (CPO) futures prices in MYR/ton at 1000 GMT:

Month Close Previous Change High Low
Mar 2010 2,645 2,610 Up 35 2,645 2,632
Apr 2010 2,674 2,599 Up 75 2,674 2,629
May 2010 2,631 2,596 Up 35 2,638 2,621
Jun 2010 2,623 2,590 Up 33 2,627 2,612

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