Kuala Lumpur. Palm oil futures completed their first weekly gain in a month on speculation production may be slowing just as drought curbs the supply outlook for rival soybean oil from South America.
Palm oil in Kuala Lumpur advanced 5.68 percent this week, while soybean futures in Chicago rose as dry weather harms crops in Brazil and Argentina. Palm oil output in Malaysia, the second-largest producer, slumped 11 percent in December and typically declines in the first quarter.
“Concern over the impact of drought on the size of the Southern Hemisphere crops and yields remain,” Barclays Capital analyst Sudakshina Unnikrisnan said on Friday in a report.
Palm oil for April delivery finished 1 percent higher at 1,880 ringgit ($522) per metric ton at the close of trade on the Malaysia Derivatives Exchange in Kuala Lumpur on Friday.
Palm oil output in Malaysia declined in December to 1.48 million tons, easing from November’s record, the country’s palm oil board said on Jan. 12, signaling production peaked. Record December shipments helped cut a record inventory by 12 percent to 2 million tons.
Palm oil, used mainly in cooking, is the cheapest cooking oil and the main substitute for soybean oil, which is produced mainly in the United States, Brazil and Argentina.
Attention was also turning to US planting after the South American drought, and “there could be a rally for soybeans, which would impact palm oil prices,” Ong Chee Ting, a plantation analyst at Maybank Investment, said.
Soybean oil for March delivery in Chicago rose 1 percent to 33.39 cents a pound as of 6:44 a.m. New York time.
The premium has averaged 46 percent so far this year compared with 65 percent in the fourth quarter, according to Bloomberg data. The prospect of substitution was narrowing the premium even as palm oil inventories are at near records, analysts said.
Soybean oil has declined 37 percent in the past six months, with palm oil losing 33 percent, according to Bloomberg data.
Brazil and Argentina, the biggest exporters of soybeans after the United States, reported dryness in major producing regions in recent months as plants needed water to flower and mature.