Malaysian palm oil futures rose for a third straight day on Monday as a spike in crude oil prices continued to stoke demand for the tropical oil, although disappointing export data for the first half of the month capped gains. Brent crude rose towards $113 a barrel on Monday after a strong rally last week, as Sunni insurgents advanced in Iraq, intensifying concerns over a potential disruption to oil exports from the second-largest Opec producer.
Firm crude makes palm oil a more attractive feedstock option to produce biodiesel. But weaker-than-expected exports raised concerns about slackening demand for the tropical oil, pressuring prices. Exports of Malaysian palm products for June 1-15 fell 7.8 percent to 589,748 tonnes from a month earlier, cargo surveyor Intertek Testing Services said. Another cargo surveyor showed exports fell 8.3 percent for the same period.
"Crude oil is very high, certainly it will encourage biodiesel activity," said a trader with a foreign commodities brokerage. "We thought it was a turning and the market should rebound... But exports are not that good. I don't think it will support the movement," the Kuala Lumpur-based trader added. "Any rally in this market is good to sell rather than buy."
The benchmark September contract on the Bursa Malaysia Derivatives Exchange had edged up 0.1 percent to 2,428 ringgit ($753) per tonne by Monday's close, with prices trading between 2,420 and 2,445 ringgit. Total traded volume stood at 50,012 lots of 25 tonnes, much higher than the average 12,500 lots. Technicals showed palm oil faces resistance at 2,437 ringgit per tonne, and may drop towards support at 2,356 ringgit, said Reuters market analyst Wang Tao.
However, palm oil imports from India, the world's top vegetable oil buyer, are expected to stay firm in the next few months due to a drop in domestic cooking oil supplies and year-end festival demand, traders said, which could support benchmark prices. Solvent Extractors' Association data on Monday showed India's palm imports jumped 22 percent in May from a month earlier.
Concerns that Indonesia, the world's top palm producer, could consume smaller volumes of biodiesel than initially estimated, may also weigh on prices, analysts said. "We estimate Indonesia may only consume 1.5 million kilolitres of biodiesel in 2014, which is 25 percent behind our forecast," said CIMB Investment Bank analyst Ivy Ng in a note.
"This is negative for CPO prices but could be offset by lower supply due to drier weather in parts of Indonesia," Ng added. "We remain optimistic on medium-term prospects of Indonesia's biodiesel usage as we see progress being made to improve the logistical issue." Malaysia, the world's second-largest palm grower, has lowered its crude palm oil export tax for July to 5 percent, a government circular showed on Monday, the first cut after three months. In other competing vegetable oil markets, the US soyoil contract for July shed 0.5 percent in late Asian trade, while the most active September soybean oil contract on the Dalian Commodities Exchange rose 0.4 percent.
