DJ Asian Crude Palm Oil Ends Up In Light Trade; Short Covering

KUALA LUMPUR (Dow Jones)--Crude palm oil futures on Malaysia's derivatives exchange ended higher Friday as investors covered shorts following a recovery in overnight soyoil and crude oil futures, but palm oil's diminishing discount to soyoil and a stronger ringgit capped gains, trade participants said.

At the end of trade on the Bursa Malaysia Derivatives exchange, only 7,175 lots of CPO were traded, less than a third of the 22,873 lots traded Thursday.

The benchmark June contract on the BMD ended MYR16 higher at MYR2,559 a metric ton after trading in a narrow MYR2,550-MYR2,569/ton range during the day.

Trading was subdued as most markets in the region was closed for a holiday.

External cues such as a rise in palm oil futures on the Dalian Commodity Exchange also boosted CPO prices.

"Based on BMD CPO trade in the past few trading sessions, prices seem to have formed a good support based around the MYR2,530 level, and could climb higher if favorable news for March CPO output and inventories surface," said a senior analyst from a Kuala Lumpur-based brokerage.

"The CPO bulls may want to push prices above MYR2,570/ton in the next trading session," he said.

But many among trade participants are still worried about the price premium erosion between soyoil and crude palm oil.

Palm olein's discount to soyoil has narrowed to as little as $10/ton from $100/ton in December, and may prompt buyers to switch to soyoil.

Also, the expected rise in Malaysia's palm oil output in March while exports remain less-than-spectacular may cap gains, said a Kuala Lumpur-based senior trading executive.

He added that Malaysia's March palm oil output is tipped to increase by 7%-11% on month.

"Output at our palm estates have shown single-digit increase (in March)," said Lee Oi Hian, chief executive at Malaysia-based listed plantation company Kuala Lumpur Kepong Bhd. (2445.KU).

In the cash market, palm olein for May/June shipment offered $2.50 lower at $812.50/ton.

Cash CPO for prompt delivery was offered unchanged at MYR2,600/ton.

Open interest on the BMD was 83,116 lots, up from 77,494 lots Thursday. One lot is equivalent to 25 tons.


Closing BMD CPO futures prices in MYR/ton at 1000 GMT:

Month      Close    Previous   Change    High    Low 
Apr 2010   2,600    2,594      Up 06     2,607   2,593 
May 2010   2,571    2,555      Up 16     2,580   2,564 
Jun 2010   2,559    2,543      Up 16     2,569   2,550 
Jul 2010   2,546    2,535      Up 11     2,558   2,539 

-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233;
shie-lynn.lim@dowjones.com