KUALA LUMPUR (July 3): Dry weather conditions affecting palm oil yield along with gains in soybean oil and palm olein futures have pushed Malaysian crude palm oil (CPO) prices above RM4,000 per tonne for the second consecutive day, said industry observers.

Three-month CPO futures stood at RM4,082 per tonne on Wednesday, slightly lower than RM4,089 a day earlier. The last time prices reached this level was in May.

Year-to-date, CPO futures have gained over 15%, reaching a high of RM4,197 on April 3 due to supply concerns. The El Nino weather conditions are increasing heat and reducing rainfall, stressing palm oil trees.

“CPO futures maintained trading above the RM4,000 level across the board. Profit-taking and cautious positioning ahead of June supply and demand estimates from the newswire's polling data, along with MPOA (Malaysian Palm Oil Association) production data, kept the trading volatile," said Fastmarkets Palm Oil Analytics managing editor Dr Sathia Varqa.

"Strong gains in rapeseed oil futures of over 100 yuan on the Zhengzhou exchange in China, as well as modest price increases between 40 to 70 yuan on the Dalian exchange in China, helped reinforce CPO futures support at RM4,000 per tonne," he told The Edge when contacted.

Nevertheless, the rally in CPO prices is not expected to be sustainable, Sathia said. 

As weather patterns normalise later in the year, CPO production is anticipated to peak between August and October, which could put downward pressure on prices. Sathia projected average CPO prices at RM3,700 to RM3,800 per tonne for the year.

“However, seasonal buying from India ahead of Diwali is likely to boost [CPO] export demand,” he added. 

Meanwhile, United Plantations Bhd (KL:UTDPLT) vice chairman and CEO Datuk Carl Bek-Nielsen said palm oil production in Malaysia and Indonesia has been inconsistent recently and this ambiguity about supply adds to the factors potentially pushing prices higher. 

“On the other hand, demand for vegetable oils is picking up and this has the potential to create a supply squeeze.

“I believe that RM4,000 per tonne is fair and that we could even see that prices would firm up a bit more if the peak is subdued and not as strong as it normally is,” he added. 

United Plantations’ business activity lies within the cultivation of oil palm and coconuts. It has a total landbank of about 62,500ha of which 83% is cultivated in Malaysia, followed by 17% in Indonesia, according to the company's annual report.