The run-up in palm oil prices may be showing signs of waning but traderssay the month-long bull run is far from over, noting that the immediatesupport level is RM1,200 a tonne.

The market is not sinking back into a bear phase, they said.

It is merely taking a breather, as prices had shot up by RM450 a tonne inabout a month.

"A correction has been long overdue.

The easier trading is expected because the market needs to see a majorretracement before moving ahead," a trader told Business Times yesterday.

"After having gained RM450, it would be normal even if prices fall back byRM150, but they won't go below RM1,100 for at least another month," hesaid.

Palm oil prices had shot limit-up across the board on the MalaysianDerivatives Exchange (MDEX) on July 12 to close above RM1,000 per tonnefor the first time in 10 months.

Prior to that, the market had been languishing near the record low ofRM693.32 a tonne posted in February, amid overcapacity and intensecompetition from other edible oils like soyabean oil, rape seed oil andsunflower oil.

It was a sharp reversal of fortunes from the all-time high of RM2,505.71 atonne traded in May 1998.

On the physical market yesterday, the commodity closed at RM1,190 a tonne,down from RM1,259.50 on Wednesday, RM1,245 on Tuesday and RM1,266 onMonday.

August South traded at RM1,190 a tonne, with total volume falling 334 lotsto 2,970 and open positions 387 contracts to 11,332.

At MDEX, palm oil futures contracts for September fell RM38 to RM1,170, asdid October, November and December by the same margin to RM1,173, RM1,174and RM1,176, respectively.

"The correction was triggered by a sudden lack of fresh demand.

Buyers unloaded their positions and others follow suit to drag the marketdown further," the trader said.

But the price slide should not last too long.

"It is a supply-driven market right now and rain in Indonesia and Malaysiahad resulted in a shortage," he added.

17 August 2001Business Times