MARKET DEVELOPMENT
Palm Oil Rally Likely to Fizzle as Ramadan Demand Fades, Harvest Supply Looms
Palm Oil Rally Likely to Fizzle as Ramadan Demand Fades, Harvest Supply Looms
12/06/2015 (Reuters) - A rally in the price ofpalm oil to three month-highs may run out of steam as buyingahead of the Muslim festival of Ramadan fades and markets bracefor growing supply as the main harvest approaches, traders andanalysts said.
With only around a week left of what is typically thestrongest demand period for the tropical oil, analysts said palmwas unlikely to climb much beyond its current price of about2,300 ringgit a tonne, with some saying it might fall.
"Near-term crude palm oil prices are likely to weaken as wehead into the peak production season in 3Q15," KenangaInvestment Bank said in a note.
The Muslim holy month of Ramadan, which this year begins inmid-June, is marked by communal fasting and feasting that tendsto drive up consumption of edible oils including palm and soy inthe Middle East and across South and Southeast Asia.
That helped Malaysian palm prices, which set the tone forglobal prices, climb from their lowest this year at 2,070ringgit in late April to 2,362 ringgit on Monday. They were alsobolstered by increased biodiesel targets in both the UnitedStates and Malaysia, the world's No.2 grower of palm behindIndonesia.
Industry data from regulator the Malaysian Palm Oil Boardshowed exports of palm oil and its products surged 37.3 percentto 1.6 million tonnes in May, the largest month-on-month rise in8-1/2 years and ahead of forecasts for a 36.6 percent rise(MYPOME-PO).
While some buyers could continue to restock in the comingweeks before the Eid al-Fitr celebrations in mid-July that markthe end of the festival month, it is unlikely to be enough tosustain the rally in prices, traders said. Recent prices havestubbornly stayed below this year's peak of 2,400 ringgit, hitin early March.
Some traders noted that despite the growing exports in May,overall consumption of palm oil could have been stronger.
"We saw take up, but it was not as great as it used to befour or five years ago," said Lingam Supramaniam, director atMalaysian-based commodities firm Pelindung Bestari.
"Prices were low for a while and there was a lot of buying.When palm olein traded above $630, then demand startedsoftening," he added. "I'm sure they would have bought othervegetable oils."
Traders and analysts said that the spectre of the El Ninoweather pattern, which triggers crop-damaging droughts inSoutheast Asia where nearly all of the world's palm is grown,could offer some support to prices. But any impact was likely tocome later, they said.
"We view that the El Nino effect on production is onlylikely to be felt late-2015 to early-2016," said Kenanga. ($1 = 3.7330 ringgit)
With only around a week left of what is typically thestrongest demand period for the tropical oil, analysts said palmwas unlikely to climb much beyond its current price of about2,300 ringgit a tonne, with some saying it might fall.
"Near-term crude palm oil prices are likely to weaken as wehead into the peak production season in 3Q15," KenangaInvestment Bank said in a note.
The Muslim holy month of Ramadan, which this year begins inmid-June, is marked by communal fasting and feasting that tendsto drive up consumption of edible oils including palm and soy inthe Middle East and across South and Southeast Asia.
That helped Malaysian palm prices, which set the tone forglobal prices, climb from their lowest this year at 2,070ringgit in late April to 2,362 ringgit on Monday. They were alsobolstered by increased biodiesel targets in both the UnitedStates and Malaysia, the world's No.2 grower of palm behindIndonesia.
Industry data from regulator the Malaysian Palm Oil Boardshowed exports of palm oil and its products surged 37.3 percentto 1.6 million tonnes in May, the largest month-on-month rise in8-1/2 years and ahead of forecasts for a 36.6 percent rise(MYPOME-PO).
While some buyers could continue to restock in the comingweeks before the Eid al-Fitr celebrations in mid-July that markthe end of the festival month, it is unlikely to be enough tosustain the rally in prices, traders said. Recent prices havestubbornly stayed below this year's peak of 2,400 ringgit, hitin early March.
Some traders noted that despite the growing exports in May,overall consumption of palm oil could have been stronger.
"We saw take up, but it was not as great as it used to befour or five years ago," said Lingam Supramaniam, director atMalaysian-based commodities firm Pelindung Bestari.
"Prices were low for a while and there was a lot of buying.When palm olein traded above $630, then demand startedsoftening," he added. "I'm sure they would have bought othervegetable oils."
Traders and analysts said that the spectre of the El Ninoweather pattern, which triggers crop-damaging droughts inSoutheast Asia where nearly all of the world's palm is grown,could offer some support to prices. But any impact was likely tocome later, they said.
"We view that the El Nino effect on production is onlylikely to be felt late-2015 to early-2016," said Kenanga. ($1 = 3.7330 ringgit)