Malaysian palm oil gains from ringgit woes

Malaysian palm oil gains from ringgit woes

KUALA LUMPUR (Reuters): Malaysia's main agriculture export
earner, palm oil, has emerged as a big gainer from the Southeast
Asian currency turmoil, and analysts yesterday predicted more
gains.

Although commodity prices in Malaysia have generally benefited
from the ringgit's weakness against the U.S. dollar, palm oil has
stood out. A weaker local currency makes exports more
competitive.

Palm oil prices, now trading at 30-month highs, have gained
about 38 percent since July when the ringgit, along with other
Southeast Asian currencies, started to fall.

"Crude palm oil being a direct substitute to soyoil is the
main beneficiary of the weakened ringgit. With both soyoil and
palm oil being quoted in U.S. dollar in international market, a
drop in the value of the ringgit directly translates to higher
prices for the crude palm oil," said a commodity analyst with a
local brokerage.

Greg Feldberg, a plantation analyst at ABN-AMRO Hoare Govett,
said, "It's pretty clear that companies and traders are paying
closer attention to the currency market than they have for a very
long time."

ABN-AMRO has raised its 1998 average crude palm oil price
forecast by 26 percent last month, from 1,388 ringgit ($416.82) a
ton to 1,742 ringgit a ton. "Of the change, 22 percent was due to
our revised ringgit forecast for 1988 and only four percent was
due to our expectation of a higher palm oil price in U.S. dollar
terms," Feldberg said.

Malaysia's benchmark, third month contract on the Kuala Lumpur
Commodity Exchange, was quoted at 1,615 ringgit a ton at midday
yesterday. The contract hit limit-up of 50 ringgit a ton on
Monday.

Analysts said the upward trend was still intact on
expectations that the ringgit would remain weak.

A Reuters poll on Monday predicted the ringgit would be at
3.37 ringgit to the dollar by the end of 1997. It was at 3.33 a
dollar at 0600 GMT yesterday.

"Palm is driven by currency again and this has attracted a lot
of speculation," the local brokerage analyst said. "It is like a
casino in the palm oil trading pit."

"Palm oil can easily hit 1,700 to 1,730 ringgit if the ringgit
is trading at around 3.37," he said.

Analysts said expected tighter supplies would also support
palm oil prices in the long term.

"We expect supply and demand conditions, especially lower
yields aggravated by the El Nio weather event, to support the
dollar price of palm oil through 1998 and 1999," Feldberg said.

Malaysia's Ministry of Finance said in its annual economic
report on Friday that palm oil production in Malaysia is expected
to fall by 2.2 percent to 8.8 million tons in 1998 from an
estimated 9.0 million tons this year.

Malaysia's "golden crop" is expected to earn 10.7 billion
ringgit in 1997, up 13.4 percent from 9.43 billion ringgit earned
last year, the ministry said.