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Palm rise to one-week closing high on tight supply outlook

Malaysian palm oil futures gained for a second session on Tuesday to hit a one-week closing high, lifted by expectations of tightening supply and as traders speculated about changes to Indonesia’s export policy.

The benchmark palm oil contract for June delivery on the Bursa Malaysia Derivatives Exchange closed up 58 ringgit, or 1.51%, to 3,895 ringgit ($882.02) a tonne.

An official at Indonesia’s economic coordinating ministry said on Monday the country plans to set its crude palm oil reference price at $932.69 per tonne for the April 16-30 period, up from $898.29 per tonne in the first half of the month.

The world’s largest palm oil producer in February had suspended some palm oil export permits to secure domestic supplies amid rising cooking oil prices ahead of Islamic festivals.

Traders said Indonesia is expected to update its so-called “domestic market obligation” (DMO) policy after the Eid festival in May.

In second-largest producer Malaysia, palm oil inventories at end-March slid 21.08% from the previous month to 1.67 million tonnes as exports surged, data by the Malaysian Palm Oil Board showed on Monday.

“We expect lower production in April 2023 due to fewer working days because of the Hari Raya (Eid) festival during the month,” UOB KayHian said in a note.

A strong recovery in production is unlikely as oil palm trees are showing sign of stress from too much of rainfall over the last three years, and there has been poor field upkeep, it said.

Meanwhile, exports from Malaysia during April 1-10 fell between 16% and 35.6% from the same week in March, cargo surveyors said.

Demand for crude palm oil may be soft given the strong supply of other vegoils globally, while it is also losing pricing competitiveness, UOB KayHian added.

Dalian’s most-active soyoil contract DBYcv1 gained 0.9%, while its palm oil contract DCPcv1 rose 3.1%. Soyoil prices on the Chicago Board of Trade BOcv1 were down 0.2%.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.
Source: Reuters (Reporting by Mei Mei Chu; editing by Varun H K and Uttaresh Venkateshwaran)

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