Palm oil rises on dull Malaysia outlook

Palm oil futures in Malaysia, the global benchmark, gained after the country said it may miss its target of record production this year after dry weather harmed the crop's development.

Palm oil for November delivery rose as much as 19 ringgit, or 0.8 per cent to 2,440 ringgit ($698) a tonne on the Malaysia Derivatives Exchange when trading resumed in the afternoon. It traded at 2,426 ringgit at 4:09 p.m. local time.

The lower-than-expected production comes as Indonesia, the biggest producer, plans to raise export taxes on crude palm oil next month to ensure local supplies, reducing overseas shipments of the commodity. Palm oil futures in Malaysia reached a record in June on higher demand from India and China, the biggest users.

"We thought production could go to 16.5 million tonnes," Malaysian Palm Oil Board Chairman Sabri Ahmad said today in an interview in Kuala Lumpur. "We will not be able to reach 16 million" this year due to tree stress caused by the lack of moisture.

Palm oil prices have averaged 2,247 ringgit a tonne since the year started, 51 per cent higher than in the year-earlier period. The contract reached a record 2,764 ringgit on June 6. Malaysia's crude palm oil output in the first seven months of the year totalled 8.04 million tonnes, 7 per cent lower than a year earlier, according to the Malaysian Palm Oil Board.

To be sure, about 55 per cent of the country's annual palm oil output typically occurs in the second half.