Malaysian palm oil futures ended higher on Monday, snapping an eight-day losing streak, as short-covering reversed losses from the morning session and helped the tropical oil stay above 2,000 ringgit. Palm had tumbled to a March 2009 low of 1,954 ringgit in early trade as financing troubles in China, coupled with lacklustre export demand, triggered speculative selling.
A bout of covering in late trading, however, helped prices recover some losses. "There was a lot of short-covering due to an oversold situation in the market in the last two days. A rebound in the Dalian palm oil market also prompted the short-covering," said a trader with a local commodities brokerage in Kuala Lumpur. "But there's no fundamental reason for the rebound. All the bearish news - the higher production, low exports - is already well absorbed."
The benchmark November contract on the Bursa Malaysia Derivatives Exchange inched up 1.6 percent to 2,027 ringgit ($641) per tonne by Monday's close, pulling away from the intraday low of 1,954 ringgit. Total traded volume stood at 25,250 lots of 25 tonnes, below the average 35,000 lots. Technicals showed palm oil may fall further into a range of 1,950-1,968 ringgit per tonne, driven by a powerful wave three, Reuters market analyst Wang Tao said.
Fears that global demand will be overwhelmed by a bumper supply of edible oils this year also pressured the market. "The main bearish factors are the large crop prospects for soybeans in the US, rapeseed in Europe and sunflower seeds in Ukraine and Russia. At the same time, palm oil is heading into its peak production season," CIMB Research analyst Ivy Ng said.
"On top of this, some buyers from China, one of the largest importers of palm oil, are having difficulties raising financing, as banks clamp down on funding for commodities, following the Qingdao port investigation." Commodities are commonly used for financing in China, where investors borrow against a product with the aim of investing the money in high-return areas such as real estate. Traders said the worries about a Chinese crackdown on commodity financing began a few months ago, but had worsened in the past week with investors trying to get rid of excess palm oil stocks that have arrived at ports.
"People have overbought the oil and they don't know where to dump it. They have to dispose of it - the selling pressure is pushing prices of palm lower," the Kuala Lumpur trader said. Sluggish demand for palm oil products this month also weighed on the market. Cargo surveyor Intertek Testing Services said exports of Malaysian palm oil from August 1-25 fell 15.3 percent compared to the same period in July. Another cargo surveyor, Societe Generale de Surveillance, reported that exports for the same period fell 11.3 percent.
Malaysian palm output, however, is seen picking up pace in August. The Malaysian Palm Oil Association, a group of growers, estimates that production rose 15.2 percent from August 1-20. In other markets, crude oil edged higher above $102 a barrel on Monday with support from geopolitical tensions in Ukraine and Libya, although ample supply limited the rebound from last week's 14-month low. In competing vegetable oil markets, the US soyoil contract for December gained 1.5 percent in late Asian trade, while the most-active September soybean oil contract on the Dalian Commodities Exchange fell 0.4 percent.
