Malaysian palm oil futures saw a significant increase for the second consecutive session on Tuesday, with the benchmark palm oil contract for July delivery on the Bursa Malaysia Derivatives Exchange climbing by 66 ringgit, or 1.67%, to 4,010 ringgit ($839.61) per metric ton by midday. This could be due to adverse weather conditions in Malaysia, which have hampered palm yields, and strong export data that buoyed market sentiment.
Weather patterns play a crucial role in the cultivation of palm oil, with optimal conditions required for maximum yield. The Malaysian meteorological agency’s issuance of Level 1 hot weather alerts in over 10 areas on Monday evening underlines the environmental challenges faced by palm oil production. Concurrently, Malaysia’s position as a leading palm oil exporter is bolstered by expectations of recovery in shipments from Indonesia, following lower-than-average exports in the previous months.
The dynamics in related oil markets also play a critical role. On Tuesday, Dalian’s most-active soyoil contract surged by 2.52%, and its palm oil contract rose by 2.09%. Additionally, soy oil prices on the Chicago Board of Trade increased by 0.92%, influenced by concerns over Argentine crops and geopolitical tensions impacting Ukrainian grain ports. These movements in related oils, which compete in the global vegetable oil market, indirectly affect palm oil pricing.
Furthermore, the slight weakening of the Malaysian ringgit by 0.02% against the dollar could have nuanced effects on export pricing and profitability. Meanwhile, firmer crude oil prices enhance palm oil’s appeal as a biodiesel feedstock, linking its fortunes to broader energy market trends.
The Malaysian government’s decision to maintain an 8% export tax for crude palm oil and to adjust the reference price further shapes the market landscape.
Such fiscal and regulatory measures are crucial in framing the economic environment for palm oil trading.
From a technical perspective, predictions by LSEG and Reuters analyst Wang Tao suggest potential resistance levels for palm oil prices around RM3,990-4,000 per ton, with support levels expected at RM3,840-3,860 per ton. Wang Tao forecasts a possible rise to around 4,039 ringgit per ton, reflecting the upper boundary of a predicted trading wave.
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