Palm oil market eyes ringgit and rupiah

Palm oil market eyes ringgit and rupiah

KUALA LUMPUR (Reuters): Palm oil prices in Malaysia and Indonesia are expected to be largely influenced this week by the performance of the ringgit and rupiah, traders said.

Chicago soyoil futures, which dragged Malaysian palm oil prices down sharply last week, will also be a crucial factor, they said.

"The market is likely to be stable, but it depends on how the rupiah behaves," said a trader in the Indonesian city of Medan in North Sumatra.

"I think right now, in the absence of fresh fundamentals, currency fluctuations play a great role in determining the price trend," said another trader in the Malaysian capital.

On Friday, the Malaysian ringgit was at 4.10 to a dollar. Malaysia's benchmark third-month October futures palm oil contract closed at 2,338 ringgit a ton.

The Indonesian rupiah closed the week at 13,950 to a dollar. Indonesian olein was at 5,200/5,300 rupiah a kg.

Fears of a further slide in soyoil futures due better crop weather in the U.S. Midwest could sideline trade in palm oil this week, dealers said.

"Although soyoil has rebounded slightly towards late last week, I feel it will dip further in the immediate term," said one trader in Kuala Lumpur.

"A continuing crop-friendly weather outlook for the U.S. Midwest will spark more liquidation," he said.

U.S. crop forecasters said they saw little threat from weather for major corn and soybean growing areas in the United States.

The weather outlook is considered key at this time as most of the U.S. soybean crop is nearing the critical stage of pod- setting.

"If the market is following the weather factor, we may see soyoil coming down further and palm is likely to follow suit," the Kuala Lumpur trader said.

The market was also awaiting an update on supply and demand of crude palm oil (CPO) in Indonesia following reports of shortage of the raw material for cooking oil.

Indonesia on Friday said it would buy all CPO produced on state-owned plantations to meet domestic needs of cooking oil.

Indonesian Minister of Industry and Trade Rahardi Ramelan said CPO consumption has reached 2.6 million tons, while state plantations could only supply 1.8 million.

Dealers said they believed Indonesia's commodities regulator Bulog will make up for any deficit in the raw material with imported cooking oil.

Ramelan said last week Bulog would distribute cooking oil to consumers through cooperatives and retailers.

"The fact that cooking oil will flood the market soon will also keep prices down," said an Indonesian trader.

Traders said Bulog had also bought 16,000 tons of olein -- a by-product of CPO before it is turned into cooking oil -- from private companies in Sumatra at between Rp 4,850-Rp 4,900 a kg.

Delivery of olein to the main island of Java was likely to follow soon, they said.