CRUDE PALM OIL ENDS UP ON TIGHT SUPPLY, SHORT COVERING

Crude palm oil futures on Malaysia’s derivatives exchange rose by as much as 1.0% Wednesday, erasing previous losses as investors covered their shorts on tight palm oil supply in Malaysia, trade participants and analysts said.

The benchmark May CPO contract on the Bursa Malaysia Derivatives ended MYR23 or 0.9% higher at MYR2,635 a metric ton after moving in MYR2,618-MYR2,639/ton range.

“The impact (on oil palms) from the dry spell during the July-September period last year may have magnified the drop in palm oil output,” said James Ratnam, senior research analyst at Kuala Lumpur-based brokerage TA Securities.

A prolonged dry spell lasting two successive months would normally have a six-seven-month delayed impact on oil palm production.

Palm oil output in Malaysia and Indonesia has been tapering off as plantations go into a low-output cycle. The impact of last year’s dry spell may lead to a sharp drop in output in February-March period, said a company executive from Malaysia-based major plantation firm.

Output may have dropped by around 15% in February compared with January, he said.

Lower palm oil output may have also reduced palm oil inventories from 2.0 million tons as at end-January to around 1.92 million tons in February.

Given an oil palm “replanting program that started end-2008, this palm oil output isn’t likely to be much higher than 2009’s 17.6 million tons,” TA’s Ratnam said.

In the cash market, RBD palm olein for April/May/June was traded at $807.50/ton, $810/ton and July/August/September at $800/ton, a Singapore-based broker said.

Open interest on the BMD was 80,375 lots Wednesday, down from 82,710 lots Tuesday. One lot is equivalent to 25 tons.

Some 9,242 lots of CPO were traded versus 11,872 lots Tuesday.

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

Month      Close    Previous   Change    High    Low
Mar 2010   2,644    2,621      Up 23     2,645   2,635
Apr 2010   2,643    2,619      Up 24     2,646   2,628
May 2010   2,635    2,612      Up 23     2,639   2,618
Jun 2010   2,620    2,597      Up 23     2,626   2,606

(END) Dow Jones Newswires

March 03, 2010 07:03 ET (12:03 GMT)