Friday, September 7, 2012

RTRS- High stocks may rein in palm oil's soy-linked rally-Mistry

KUALA LUMPUR, Sept 6 (Reuters) - Record southeast Asian palm oil stocks could rein in benchmark Malaysian futures FCPOc3 that gained on the back of U.S. drought crimping soy production and boosting prices of competing soyoil, a leading industry analyst said.


Dorab Mistry, head of vegetable oil trading with Indian conglomerate Godrej Industries GODI.NS, pegged palm oil futures at 2,900-3,300 ringgit ($930-$1,059) per tonne in September and October. Current prices stand at around 3,000 ringgit.

A shorter-than-usual low cycle for palm oil output in No.2 supplier Malaysia and a record stock build in top producer Indonesia due to infrastructure bottlenecks have started to weigh on palm oil prices, the analyst said.

While this might suggest that higher supplies of palm oil could offset the shortfall in soyoil after drought hurt the U.S. soybean crop, demand could start to weaken as the northern hemisphere winter approaches, Mistry said.

Palm oil becomes unusable in colder temperatures as it crystallises.

"It is difficult to be bullish on palm oil prices. These prices are shining on the reflected glory of soyoil," Mistry told an industry conference in Singapore on Thursday.

"Analysts have been talking about the compelling bullish outlook for palm oil as a result of its discount to soyoil. But we are on the threshold of winter and there is only so much substitution that can be done," he added.

Malaysian refined palm olein, used in cooking oil, could widen its discount to crude Argentine soyoil to $300 on weather concerns before narrowing again, Mistry said. The discount now stands at about $250 a tonne.

IGNORED INDONESIAN STOCKS

Mistry predicted a supply glut was looming in Malaysia, which would cause palm oil prices, which have lost 6.7 percent so far this year, to decline further.

Mistry said the low cycle for yields only lasted for six months as oil palm trees needed a few months to "rest and recharge their batteries" after strong growth last year.

He expected output to hit a record 2 million tonnes each in September and October, leading to historically high stocks in Malaysia.

"I am told that Indonesian production is shaping very well from September onwards and we could have a late peak in November," Mistry said.

Mistry said current stocks of Indonesia are almost at 4 million tonnes, almost double Malaysian levels. This is due in part to "tardy logistics" in the country where it can take two months for fruits to be converted into exportable refined palm oil when the process should take, at most, half that amount of time.

"Normal stocks of palm products in Indonesia in the last two years have been in the order if 3.5 to 4 million tonnes as against the normal conventional guesstimate of 1.5 to 2million tonnes," he said.

"These hidden palm oil stocks in Indonesia are the key reason for the dismal performance of palm oil prices," he added. ($1 =3.1170 ringgit)

Trader's Highlight

DJI- NEW YORK, Sept 6 (Reuters) - U.S. stocks closed at multi-year highs on Thursday, with the S&P 500 ending at its highest level since before the collapse of Lehman Brothers as investors hailed a new European bond-buying program aimed at stemming the region's debt crisis.

Sentiment was also boosted by stronger-than-expected data on the U.S. services sector and labor market, which was especially notable ahead of Friday's non-farm August payrolls report.

The rally was broad, with more than three-fourths of stocks listed on both the New York Stock Exchange and Nasdaq ending higher. Materials, financials and industrials - groups tied to the pace of economic growth - led with gains of more than 2 percent, giving the Dow index its biggest daily gain in two months and helping the Nasdaq advance to its highest since 2000.

"As clouds related to Europe start to drift off, there's no question that there's still juice left from here," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments, which has about $120 billion in assets under management. "That equities are up double digits year-to-date doesn't deter us from remaining overweight on them for the foreseeable future."

Tech shares helped lift the Nasdaq in its best daily performance since July 27. SanDisk Corp SNDK.O climbed 8.4 percent to $44.01 and Micron Technology Inc MU.O added 7.8 percent to $6.68. The Dow was lifted by Walt Disney Co DIS.N, which advanced 2.1 percent to an all-time closing high of $51.86.

ECB President Mario Draghi, backing up his July pledge to do whatever it takes to preserve the euro, said the central bank's plan for potentially unlimited bond-buying would address bond market distortions and "unfounded" fears of investors about the survival of the euro.
"We think this is a credible plan to addressing the issue, and while there are still political hurdles, we expect those will be addressed," said Alec Young, global equity strategist at S&P Equity Research in New York.

U.S. companies added staff in August at the fastest clip in five months, according to the better-than-expected ADP report, while a gauge of employment in the service sector also improved more than had been anticipated. New weekly claims for jobless benefits fell to the lowest level in a month.
Even with Thursday's encouraging numbers, economists think the payroll report will show only modest hiring, at 125,000 new jobs, and the unemployment rate holding steady at 8.3 percent.

"ADP doesn't correlate perfectly with payrolls, but people are feeling better about the jobs market these days," Young said. "There was confidence we would see jobs in the mid-100's even before this."

The Dow Jones industrial average .DJI rose 244.52 points, or 1.87 percent, to 13,292.00. The Standard & Poor's 500 Index .SPX was up 28.68 points, or 2.04 percent, at 1,432.12-- its highest level since May 2008, before the financial crisis began to gather steam. The Nasdaq Composite Index .IXIC was up 65.12 points, or 2.12 percent, at 3,134.39.

Equities have rallied in recent months on growing expectations for ECB action. The S&P is up about 8 percent since the start of July.

The ECB's program, which Germany's Bundesbank is known to have opposed, would focus on bonds maturing within three years and was strictly within the ECB's mandate. Draghi said only one member of the ECB Governing Council had dissented.
The ECB also announced that it will keep its main interest rate at a record low 0.75 percent, holding fire after a pick-up in inflation last month offset pressure to breathe life into the flagging euro zone economy by easing borrowing costs.
In company news, Supervalu Inc SVU.N said it would close about five dozen stores as it works to turn around its grocery business, which lags Kroger Co KR.N and Wal-Mart Stores Inc WMT.N. Supervalu shares rose 3.5 percent to $2.36.

Realty Income Corp O.N plans to acquire American Realty Capital Trust Inc ARCT.O for about $1.93 billion as it looks to diversify its portfolio outside the retail industry. Shares of Realty Income slipped 0.6 percent to $42.21 and Capital Trust rose 2 percent to $12.20.

Volume was stronger than in recent sessions, with about 6.98 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. However, it remained below last year's daily average of 7.84 billion.

NYMEX- NEW YORK, Sept 6 (Reuters) - U.S. crude futures rose on Thursday following a U.S. government report showing a drop in domestic crude stockpiles and on optimism following the European Central Bank's announcement of a bond buying program.
 
CBOT- Soybean futures on the Chicago Board of Trade ended modestly lower on profit-taking from this week's record highs and ideas that rain may have stabilized the U.S. soybean crop, traders said.

* But losses were limited by a nearly 3 percent rise in CBOT wheat and a 1 percent rise in CBOT corn, along with higher U.S. equity markets and a weaker dollar. The European Central Bank's decision to embark on a new bond buying program boosted investor appetite for risk. MKTS/GLOB

• Commodity brokerage INTL FC Stone late Wednesday raised its 2012 U.S. soybean production forecast to 2.739 billion bushels, with an average yield of 36.7 bushels per acre. In August, the firm pegged the soy crop at 2.730 billion bushels with an average yield of 36.2 bushels per acre. (Full Story)

• China's Dalian soybeans fell, with the most-active Dalian May soybean contract DSAK3 down about 2 percent, its biggest daily drop in more than a month. (Full Story)

• Brazil's main grain belt remains dry and there are no immediate forecasts for rain, just nine days before farmers can legally start planting what is expected to be a record soybean crop - local weather forecaster. (Full Story)

• CBOT reported no soybean or soymeal deliveries against September futures, while soyoil deliveries totaled 783 contracts.

FCPO- KUALA LUMPUR, Sept 6 (Reuters) - Malaysian crude palm oil futures fell to a 3-week low on Thursday, as traders booked profits after U.S. soybeans dropped from a record high and a leading industry analyst warned of a looming supply glut of the tropical oil.

Soybeans touched a 1-week low in Asian trading hours as traders locked in profits with expectations of supply coming in with the Midwest harvest kicking off, a sentiment that spread to palm oil futures. GRA/

The market turned more bearish after Dorab Mistry, head of vegetable oil trading with Indian conglomerate Godrej Industries, said record southeast Asian palm oil stocks may weigh on prices that have fallen more than 7 percent this year.

"The Dalian and Chicago Board of Trade this morning is already under pressure. Definitely, palm is following up with the external pressure," said a trader with foreign commodities brokerage in Malaysia.

The benchmark November contract FCPOc3 on the Bursa Malaysia Derivatives Exchange tumbled as much as 2.6 percent to 2,913 ringgit ($935) per tonne, its lowest level since Aug. 16, before closing at 2,948 ringgit.

Total traded volume stood at 45,071 lots of 25 tonnes each, much higher than the usual 25,000 lots.

Technicals were also bearish. Malaysian palm oil is expected to drop further to 2,901 ringgit, as it has broken below a support at 2,956 ringgit per tonne, according to Reuters analyst Wang Tao. (Full Story)

In the palm oil physical market, sellers are now holding back after the futures prices fell sharply, although buyers are keen to strike deals at lower levels, traders said.

"Those who have sold earlier are looking to take some profit and buy back," said the Malaysian trader. "I feel that if the market goes a bit lower, they will see more physical buying support coming in, either to take profit or to build positions."

In a bullish signal for palm oil, crude oil futures rose above $114 per barrel on Thursday, buoyed by expectations that the European Central Bank will manage to ease its debt crisis with a new programme of bond purchases. O/R

But edible oil prices were still under pressure from profit-taking.

By 1008 GMT, U.S. soyoil for December delivery BOZ2 fell 0.7 percent. The most active January 2013 soyoil contract DBYF3 on the Dalian Commodity Exchange closed 1.3 percent lower.

REGIONAL EQUITY- BANGKOK, Sept 6 (Reuters) - Malaysian shares fell to a two-month low on Thursday, led by index heavyweights such as CIMB Group Holdings CIMB.KL and Axiata Group AXIA.KL, as traders turned cautious after a recent report by rating agency Standard & Poor's.
Malaysia's main index .KLSE lost 1.4 percent, its biggest one-day fall since mid-May, ending at 1,617.99.
The fall followed Wednesday's 0.8 percent decline, trimming its gain since the start of this year to 5.7 percent, the smallest in Southeast Asia.

Singapore's Straits Times Index .FTSTI fell for a fourth session, finishing 0.2 percent lower at 2,989.26, the lowest close since July 23. The Ho Chi Minh Stock Exchange's VN Index .VNI fell 1.4 percent to a one-week closing low of 393.41.

Stocks in Indonesia .JKSE and Thailand .SETI bucked the trend amid selective buying in banking stocks. Among actively traded stocks, Bank Rakyat Indonesia BBRI.JK rose 2.1 percent and Kasikornbank KBAN.BK gained 2.6 percent.