Palm oil prices may increase in Malaysia, fall in Indonesia

Palm oil prices may increase in Malaysia, fall in Indonesia

KUALA LUMPUR (Reuters): Palm oil prices in Malaysia should
rise this week on expectations of falling output while Indonesian
prices were seen lower following government plans to raise local
supply, regional traders said.

They said a slightly larger-than-expected Malaysian palm oil
stock at the end of October was unlikely to have much impact on
prices.

On Saturday, the Palm Oil Registration and Licensing Authority
(PORLA) said palm oil stocks had risen 13.25 percent to 1.03
million tonnes at end-October from 906,570 tonnes at end-
September. PORLA put crude palm oil output in October at 912,284
tonnes, down 2.66 percent from September, and exports at 618,989
tonnes against 739,777 in September.

"I don't think the figures will turn the market around," a
trader in Kuala Lumpur said. "Sentiment is a bit bullish at the
moment and I see prices climbing further."

Traders said market sentiment had been underpinned by
expectations of falling production in Malaysia and news that
Indonesia's state commodities regulator, BULOG, had slapped an
export quota on palm oil.

Malaysia's palm oil output and quality have been hit by smog
from forest fires in Indonesia which has blanketed large parts of
Southeast Asia in the last few months, officials at the country's
leading plantation firms say.

They said yields would drop further in coming months because
the full impact of the smog had not yet been felt.

Traders said a drought spawned by the El Nino weather pattern
was also seen slashing production in Indonesia and Malaysia,
putting more pressure on prices.

"We're going to see the impact some time next year," one said.
"We may then see stronger prices than we're seeing at the
moment."

Demand is seen remaining steady, especially from China.

"Chinese year-end demand is keeping prices on the firm side.
India is still buying," one dealer said.

Traders said palm oil was still more attractively priced than
other oils.

"Palm's looking good," a European dealer in Singapore said.
"There is a possibility people will be switching to palm because
it is much, much cheaper than other oils."

The dealer added that the move by BULOG to impose an export
quota "will tighten up supplies and give a further impetus to
prices".

Malaysia's benchmark third position futures contract closed on
Friday at 1,741 ringgit a tonne, compared with 1,665 ringgit a
week earlier. Traders expected the contract to head for 18
ringgit a tonne.

Indonesian palm olein prices are expected to trend lower this
week amid government plans to raise local supply by curbing
exports ahead of Christmas and Eid al-Fitr, traders said.

"Prices will be under pressure (this) week," one trader said.
"The government's decision to increase local supply over the next
few months will see prices coming off."

BULOG chairman Beddu Amang told reporters after meeting
President Suharto on Thursday that quotas would be imposed on
palm olein exports to ensure increased supply to the local market
ahead of the festivals.

He said details would be worked out by the industry and trade
ministry, adding BULOG would also continue with its intervention
selling in a bid to control prices.

Amang said state plantations would supply BULOG with 40,000
tonnes of palm olein monthly for the market operations.

Traders said they were waiting for details on the export
quotas, adding that the amount of palm olein players are allowed
to export would determine how much prices would decline.

"Any drastic cut in palm olein exports will see the local
market being flooded with oil and send prices sliding," one
trader said. "But I don't think this (drastic cut) will be the
case."

Palm olein finished the week at 1,870 rupiah/kg in Jakarta,
compared with 1,880 rupiah the previous week.