Against all predictions of stagnant demand and bearish trends, Malaysian crude palm oil futures again rose 1 percent on Monday June 17, 2008. The benchmark, Malaysian crude palm oil’s September future contract on the Bursa Malaysia derivative Exchange closed at 3727 ringgit per ton (which is equal to $1140). The benchmark contract even rose to 3750 ringgit per ton earlier on Monday.

The main reason behind this price rally was the fact that international soy oil markets also gained momentum due to bad weather forecast for the soybean crop. Market feared that floods in the Midwest would severely smash up the soybean crop. US soy oil for July delivery jumped 1.5 per cent in Asian trade on Monday. As a result, o.3 percent increase was observed in the most-active September soy oil contract on China’s Dalian Commodities Exchange. Consequently, many traders entered the crude palm oil future contracts in order to make profits if soy oil production could not meet the demand due to bad weather in the coming days. That is why the benchmark September contract even touched the 3750 ringgit per ton mark.

Later, stagnant demand for tropical vegetable oil put an end to this price-hike and weighed on the market. Moreover, the crude oil factor also came into play. Crude oil is currently being traded at around $132 per barrel, thus hampering the demand for palm oil as a bio-fuel alternative even further.

Malaysian crude palm oil futures have already gained almost 23 percent in the first six months of year 2008. Overseas demand for this commodity is not too strong to hold the price firmly upward. Exports of Malaysian crude palm oil products fell 13 percent in the first two weeks of June, 2008. Exports dropped from 642,538 tons shipped during the same period in May,2008 to 558,630 tons this months. Whereas the stocks of palm oil are expected to go beyond 2 million tons in June,2008 as production of palm oil has already outpaced overseas demand. Official crop agency Malaysian Palm Oil Board declared that last month the palm oil reserves in Malaysia went up substantially by 6.9 percent to 1,913,360 tons.

The main factor responsible for falling exports is lack of buyers from China, India and other major markets. South Asian countries no longer seem active trader in the palm oil markets. Pakistan’s palm oil exports are also likely to decline up to 10% in 2008 due to good sunflower crop and edible oil production at home. Pakistan imported 480,000 tons of crude palm oil in 2007. A 100,000 tons increase is expected in sunflower crop in 2008, which will reduce the crude palm oil exports by approximately 10%. Another factor hindering palm oil imports for the South Asian country is high prices in the overseas market.
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In the nutshell, Malaysian Palm oil gained on frail basis, i.e. soy oil crops might get damaged due to bad weather. All other factors having potential impact on the Malaysian crude palm oil trade are portraying a dismal picture of the palm oil market. I would say that it’s definitely a wrong time to be in the market.