KUALA LUMPUR: Palm oil futures climbed to a five-week high on Thursday as monsoon-driven floods in Malaysia's key producing regions sparked concerns of supply disruptions.
Seasonally heavy rains, which the weather office forecast to continue next week, have triggered floods in major oil palm growing areas that account for almost 75 percent of Malaysia's total output.
Potentially lower production from the heavy rains at a time of still-resilient demand could cut into record stocks that have seen palm oil prices lose 23 percent this year.
"The gains today are mostly headline driven with the flood news and all that, although it (the flood) has been easing a bit after Christmas," said a dealer with a foreign commodities brokerage in Malaysia.
"There has also been active buying of palm as traders attempt to narrow its price gap to soybean oil at around a $280 per tonne level."
The benchmark March contract on the Bursa Malaysia Derivatives Exchange rose 1.6 percent to 2,469 ringgit per tonne ($805) -- the highest level seen since Nov 20 -- before settling at 2,468 ringgit per tonne by the midday break.
Total traded volumes stood at 11,431 lots of 25 tonnes each, a tad lower than the usual 12,500 lots.
Malaysian palm oil futures are expected to recover in the first quarter of next year even after the market faces its biggest yearly loss since 2008 on expected stronger demand for the crude grade.
Malaysian crude cargoes are likely to be cheaper after the government set the January export tax rate at zero. The Southeast Asian country has changed its tax regime to better compete with top producer Indonesia.
Indonesia set its monthly export tax on crude palm oil to 7.5 percent, government officials said late Wednesday.
Exports in the first 25 days of December rose as much as 3 percent due to bigger purchases from India, the world's top edible oil importer, and the U.S, cargo surveyor data showed.
Brent crude held near $111 per barrel on Thursday as jittery investors stayed on the sidelines with a deadline to avert a US fiscal crisis approaching, while hopes the new Japanese government's policies will spur demand supported prices.
In other competing vegetable oil markets, US soyoil for January delivery rose 0.4 percent in early Asian trade on expectations of strong Chinese food demand. The most active May 2013 soybean oil contract on the Dalian Commodity Exchange rose 0.2 percent.
