KL palm oil seen firming on demand

KL palm oil seen firming on demand

KUALA LUMPUR (Reuters): Malaysia's palm oil prices may bounce beyond the 1,200 ringgit level later this year on bad weather in the United States and heavier demand from major buyers like India and China, an industry official said on Tuesday.

"I think it (the price) will stay around 1,200 ringgit. If the U.S. (soybean) crop has problems, then it may go up further," Ahmad Ibrahim, marketing director of the state Malaysian Palm Oil Promotion Council (MPOPC), told Reuters in an interview.

Malaysia's palm oil futures hit 1,315 ringgit (US$346.05) a ton -- their highest level in 22 months -- on Aug. 8 (third-month basis), driven by concern that supplies may be hit in coming months by adverse weather.

But prices have gradually eased since then with some traders saying recent persistent rains would instead boost output from the world's largest palm oil producer.

By midday on Tuesday, the benchmark third-month November contract was quoted 21 ringgit higher at 1,136 ringgit ($298.95) a ton as traders covered their positions after Monday's sharp drop.

Ahmad said Monday's 71 ringgit slide was a correction and he expected prices to trend higher now, particularly as dry weather in the U.S. may affect the soybean crop from the world's largest producer, which in turn could further boost palm oil prices.

Palm oil is soyoil's direct competitor.

"What happened is that the increase in (the palm oil) price was too fast. Now it's being corrected," Ahmad said.

"But we see in the last few weeks, the weather is not very conducive in the U.S. for a good (soybean) crop."

Ahmad said India, the world's largest edible oil importer, was also in the market for palm oil ahead of the Diwali Hindu festival of lights in November, while China would increase its intake when it joined the World Trade Organization (WTO).

Malaysian government officials have said China's palm oil import quota could stand at up to 2.88 million tons in 2005, compared with 1.4 million tons in 2001.

India was Malaysia's main palm oil buyer in 2000, taking 2.03 million tons.

Ahmad said population growth and an improvement in purchasing power was expected to boost global palm oil consumption to more than 16.5 million tons this year from 15.1 million in 2000.

Demand for vegetable fats was also rising because people were more health conscious and were shunning animal fats, he said.

Bangladesh imports could reach up to 300,000 tons this year compared with less than 100,000 tons last year, he said.

Malaysia and Indonesia, the world's second largest palm oil producer, account for more than 85 percent of global palm oil exports. About 60 percent of palm oil exports came from Malaysia and 25 percent from Indonesia, Ahmad said.

Malaysia's palm oil production is expected to increase 3.4 percent to 11.2 million tons in 2001. Indonesia's output is projected to reach 7.2 million tons this year compared with 6.5 million tons in 2000.