Palm oil futures hit four-week high on expectations of dry weather

A worker sits beside palm oil fruits on a lorry outside Kuala Lumpur.
A worker sits beside palm oil fruits on a lorry outside Kuala Lumpur.PHOTO: REUTERS

SINGAPORE (Reuters) - Malaysian palm oil futures closed marginally higher on Friday after climbing to a four-week top earlier in the session on expectations that dry weather due to the El Nino weather pattern will reduce production across Southeast Asia.

A plan by Indonesia, the world's biggest palm oil producer, to ramp up edible oil-based biodiesel production next year provided additional support to the market.

The February benchmark palm oil contract on the Bursa Malaysia Derivatives Exchange finished up 0.1 percent, or 3 ringgit, to 2,367 ringgit ($560) a tonne.

It climbed to an intra-day high of 2,380 ringgit, the highest since Nov. 9. Traded volume stood at 28,657 lots of 25 tonnes each.

"It is mainly driven higher by Indonesia's biodiesel mandates and dryness because of El Nino," said one Singapore-based trader.

"We are also hearing of some Chinese buyers covering their demand."

Global palm oil output will rise by 1 million tonnes next year, leading vegetable oils analyst Dorab Mistry has said, slashing his outlook for a second time, citing forecasts for lower rains due to the El Nino weather pattern.

A key monthly indicator for El Niño has reached a level not seen since 1997, according to the U.S. weather agency, when the weather pattern caused heavy rains and flooding in parts of South America and severe drought hit crops in Indonesia.

At the same time there are expectations of higher palm oil offtake which could reduce some of the burdensome stockpiles that have weighed on prices.

Biodiesel producers in Indonesia are planning to boost output capacity next year by almost a fifth to 8 million kilolitres to meet higher mandates, a senior industry official said.