CHINA PALM OIL - DROUGHT NO HELP TO GLOBAL PRICES

KUALA LUMPUR/SHANGHAI, June 13 (Reuters) - A severe drought in Chinafor the second year in a row is unlikely to help weak palm oil prices,Chinese analysts said on Wednesday, dashing market hopes the dry weatherwould help boost Chinese demand."The drought doesn't affect palm oil demand that much," said Liu Aimin,edible oil analyst at Beijing Orient Agribusiness Consultant."The two are not really related," he said.Malaysian palm oil futures have been craving market-friendly news forthe past few months as high domestic stocks and poor export prospects keptsentiment weak.Talk that China planned to increase its palm oil purchases have beencirculating in the Malaysian market since early this month, pushingfutures prices up to around 800 ringgit ($210.53) this week -- a levellast seen on April 16."China is going to buy palm oil, soybean beans, etc because of thedrought," said one trader in Kuala Lumpur. "The statement from LuhutPandjaitan has given us a strong indication China will buy more palm oilthis year."Indonesia's Trade and Industry Minister Luhut Pandjaitan said onTuesday China had agreed to raise palm oil import quotas. He hoped thepresent full-year quota of 1.2 million tonnes from Malaysia and Indonesiacould be raised by up to 400,000 tonnes.Kuala Lumpur markets cheered the news even as some Chinese traders saidthe drought argument did not hold water. By midday on Wednesday,Malaysia's palm oil benchmark third-month August was up four ringgit at823 ringgit a tonne.

ANY NEWS IS GOODChina's spring drought appears to be worsening with tens of million ofpeople and animals suffering from water shortages and millions of hectaresof crops damaged, officials say.Anticipation of more buying from drought-stricken China also boostedprices in Europe on Tuesday, when crude palm oil cif Europe closed $2.50to $5 a tonne up."People already know China will release the import quotas. Theattention is now on the drought because it has raised hopes that Chinawill further increase the quota," said one trader in Kuala Lumpur.Industry sources say China issued 600,000 tonnes of import quotas inJanuary for the first half of this year and for another 100,000 tonnes inMay."The next batch will probably come later this month, over 500,000tonnes. But that will not be enough. So they might give out about 300,000tonnes more later this year," Liu said.But while overseas markets were hopeful, some traders remainedcautious. In China, analysts said the optimism in global markets was anoverreaction."I don't see how the drought can raise palm oil demand," said a traderfrom Beijing Xinmin Grains and Oils Trade Co."Demand is going to be stable throughout the year, except for July toSeptember when it's normally higher than other months," he said.China imported 425,089 tonnes of palm oil in the first four months, upfrom 405,870 tonnes from the previous year, custom figures show. Analystssay they expect China to import 1.5 million to 1.6 million tonnes in 2001.Malaysia and Indonesia, the world's top palm oil producers, have beenhoping that China would absorb some of its planned increase output in2001.Pandjaitan said last week Indonesia planned to produce seven milliontonnes of palm oil in 2001, up from 6.5 million tonnes.Malaysia is expected to produce 11.2 million tonnes in 2001, up 3.4percent year-on-year, the official Malaysian Palm Oil Board said onWednesday.