Palm Oil Reverses, Closes Higher After Inventory Data Surprises

After hitting a three-year low in early trade, crude palm oil futures on Malaysia’s derivatives exchange reversed direction Monday, rallying to close higher after the release of data showing that inventories rose less than expected in October.

The benchmark January contract at Bursa Malaysia Derivatives ended 0.3% higher at 2,324 ringgit a metric ton after tumbling more than 4% to MYR2,220/ton in the first 10 minutes of trade. It was only the second gain in the past seven sessions.

The market rallied after the Malaysian Palm Oil Board reported that end-October inventories totaled only 2.51 million tons–a record high but well below market expectations of 2.70 million-2.82 million tons. Short-covering in the afternoon session helped fuel the rally.

Malaysia's production of palm oil in October fell 3.3% from the previous month to 1.94 million tons, while exports reached 1.76 million tons, an increase of 16% from the previous month, the MPOB said.

"From the latest MPOB data, we can conclude that Malaysian stocks aren't likely to hit 3 million tons in early January," said S. Paramalingam, executive director at Kuala Lumpur-based brokerage Pelindung Bestari.

Mr. Paramalingam was referring to a forecast by analyst Dorab Mistry, who last week reiterated that stockpiles could surpass 3 million tons by Jan. 1.

"Toward the end of December, stocks in Malaysia could hover around 2.2 million tons. We think that the inclement weather will have an impact on output, seeing as the monsoon has already affected palm oil areas in the northern region of peninsular Malaysia," Mr. Paramalingam said.

In the cash market, refined palm olein for January/February/March shipment was traded at $800/ton and $802.50/ton, free on board Malaysian ports, a physical market trader in Singapore said.

Open interest on the BMD was 138,400 lots, versus 138,208 lots Friday. One lot is equivalent to 25 tons.

A total of 48,969 lots of CPO were traded versus 40,042 lots Friday.

Ending BMD Crude Palm Oil (CPO) futures prices in MYR/ton: 

Month   Close  Previous  Change   High    Low
Nov'12  2,240     2,249      -9  2,240  2,200
Dec'12  2,293     2,314     -21  2,294  2,190
Jan'13  2,324     2,316      +8  2,330  2,220
Feb'13  2,366     2,353     +13  2,372  2,258 

Write to Shie-Lynn Lim at shie-lynn.lim@dowjones.com

(END) Dow Jones Newswires

November 12, 2012 05:38 ET (10:38 GMT)

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