Asia Crude Palm Oil Ends Up As Malaysia Ups CPO Export Quota

    KUALA LUMPUR (Dow Jones)--Crude palm oil futures on Malaysia's derivatives exchange rose 3.5% Monday, recovering from some of last week's losses on an increase in the CPO export quota and spillover support from both soyoil and crude oil, said trade participants. 

    The benchmark December contract on Bursa Malaysia Derivatives ended MYR62 higher at MYR1,835 a metric ton, off an intraday low of MYR1,742. 

    Open interest on BMD rose above 80,000 lots and overall, CPO continues to remain heavily oversold, notwithstanding the latest gain in prices. 

    Minister for Plantation Industries and Commodities Peter Chin Monday announced that the annual export quota for CPO has been raised by 50% with immediate effect to 3.0 million tons. 

    He said Malaysia is aiming to reduce palm oil inventories to 1.5 million tons at the earliest possible from the current level of 1.95 million tons. 

    Last week, Chin told Dow Jones Newswires in an interview that Malaysia plans to increase exports of CPO in crude form. 

    "If there is adequate demand and Malaysia is able to quickly move stocks of CPO, higher exports will definitely ease inventories," said a Singapore-based analyst. 

    In Malaysia, exports of palm oil in crude form are strictly regulated through quotas and licenses to encourage local refining. However, a recent surge in inventories, which reached an all-time high of 2.04 million tons by end-June, has prompted the government to raise the export quota. 

    Chin said the biodiesel blending program, which has been delayed for quite some time, is expected to be finally started by the end of this month. 

    He said the commodities ministry favors a 5% blend, but a final decision will be taken by the Cabinet Committee on Palm Oil. Its next meeting is scheduled for Oct. 21. 

    Citigroup said in its latest report that a fall in Malaysia's palm oil output in September may be an indication that plantations are facing biological stress and production is likely to slow down. 

    It said the fall in Malaysia's production in September was the first on-year decline in 11 months. 

    But some traders say the outlook for palm oil prices is still bearish and will continue to hinge on crude oil prices. 

    Last month, even London-based vegetable oil analyst Dorab Mistry said it is better to wait for the October output numbers to get a proper indication of trends in the production cycle because September is a shorter month and many plantation workers were away on leave during the holy Muslim month of Ramadan. 

    "Palm oil production is yet to peak and may do so in November," said an executive at a Malaysian palm oil-based products manufacturing company. 

    He said palm oil exports will be sluggish during the October-December quarter due to bumper soybean harvests in China and India and weak winter demand in the Northern Hemisphere. 

    Traders also expect palm oil prices to fall toward MYR1,500/ton if crude oil prices decline to $50-$70 a barrel. 

    At 0932 GMT during the Globex electronic session, light sweet crude on the New York Mercantile Exchange for November delivery was trading $3.38 higher at $81.08 a barrel. 

    CPO's open interest on the BMD rose to 81,694 lots from 79,490 lots Friday. CPO volumes traded on BMD totaled 17,933 lots, up from Friday's 13,312 lots. 

    Cash palm olein for prompt shipment traded at $597.50/ton and $595/ton, said a trader in Singapore. 

    Cash CPO for prompt shipment was last offered MYR40 higher at MYR1,880/ton. 

Closing BMD CPO futures prices in MYR/ton at 1000 GMT: 

Month      Close    Previous    Change    High     Low 

Oct 08     1,875    1,839       Up 36     1,875    1,816 

Nov 08     1,845    1,793       Up 52     1,852    1,780 

Dec 08     1,835    1,773       Up 62     1,836    1,742 

Jan 09     1,831    1,763       Up 68     1,832    1,730 

Source : Dow Jones Newswires Monday, 13 October 2008 18:46:13