Asian palm oil marts wary over riots

Asian palm oil marts wary over riots

KUALA LUMPUR (Reuters): Asian palm oil traders are expected this week to keep a close watch on the turmoil in Indonesia, traders said.

The outlook for the Indonesian market was uncertain amid outbreaks of violence in Medan, a key commodity trading city in North Sumatra, they said.

Several people have been reported killed in protests in Medan. People in the East Java capital of Surabaya took to the streets in protests on Sunday, calling for President Soeharto to step down.

"We will still monitor the situation in Medan. We are in a kind of unknown territory because things are scary," said a trader in Jakarta.

"There is no (palm olein) price because there is no trade. You can ask for 10,000 rupiah per kg, but what if nobody has the olein," one trader in Medan said.

Another Medan-based trader said: "There are no more deliveries from the plantations, which are located outside the city. Tension is still high there as the security forces are now concentrated mostly on the city center."

The riots were sparked by government increases in fuel and transportation prices in line with a reform agreement with the International Monetary Fund.

Traders in Indonesia said transport of crude palm oil was slow due to fears that road tankers might be attacked.

There had been no more deliveries from Medan as the toll roads leading to Belawan port, the main exit for olein, rubber and coffee, was still closed by police to prevent riots spreading to the area, Indonesian traders said.

Indonesia's palm olein, used as cooking oil, closed on Friday at 4,000 rupiah/kg by some traders, up from 3,750 rupiah/kg on Thursday.

Meanwhile, palm oil prices in Singapore and Malaysia are seen firm on bullish sentiment.

"Sentiment is quite firm again. Some people have started to go long," said one trader in Singapore. "If riots don't stop in Indonesia, sentiment will be even more bullish."

The Indonesian factor, coupled with supportive fundamentals and a weak ringgit against the U.S. dollar, pushed Malaysia's benchmark, third month, July futures up by more than 200 ringgit a ton last week. The contract closed on Friday at 2,498 ringgit a ton.

"We can't predict the resistance level. The market is so liquid. We do not know what is going to happen next in Indonesia and with the currency," said a senior trader in Malaysia.

However, some traders felt that the third month contract could test its record level again.

The contract hit a historical level of 2,530 ringgit in January this year.

This week's sentiment should remain strong as a nearby supply shortfall would prompt stocks-strapped refiners to cover their positions, Malaysian traders said. "Cash prices are going to stay firm," one trader said.

Traders attributed low Malaysia stocks to the smaller output owing to a drought.

Malaysian private forecaster Ivan Wong on Friday estimated end-April stocks at 595,000 tons against 623,989 tons at end- March.

Another Malaysian trader added: "There is also a lot of uncertainty in Indonesia and not much oil is coming out from there. It's all because of the riots. So people may continue to buy."