Bursa Malaysia Derivatives Berhad (BMD) palm oil futures rose due to lower output forecasts, strong demand from India and political unrest, industry sources told AgriCensus.

The gains meant that the contract had now recovered much of the ground lost at the end of July and early this month, according to the 4 August report.

“The BMD is rallying due to two major factors: a Dalian rally from Chinese funds pushing it up, and Indian physical buying this week,” Singapore-based broker Andy Soo, from Tropical Oil ACI, told AgriCensus.

India’s demand for palm oil returned in July following reduced demand in May-June due to record high prices for the tropical oil, according to the report.

And “with the festive season round the corner, demand should continue to be robust along with prices,” the Solvent Manufacturers Association of India (SEA) was quoted as saying in a press release in late July.

“Renewed palm oil purchases from India and political uncertainty in Malaysia have contributed to the rise in BMD crude palm oil (CPO) futures," Anilkumar Bagani, research head at Mumbai-based vegetable oil broker Sunvin Group, told AgriCensus.

Palm oil prices were also well supported by lower July palm oil output and improved expectations of August export numbers, Bagani added.

Another influencing factor could be the continued weakness of the Malaysian ringgit, which increased the competitiveness of Malaysian palm oil compared to other origins, according to the report.

“Political instability in Malaysia, with the incumbent government likely to be replaced, may be weakening the Malaysian Ringgit,” Sathia Varqa, owner and co-founder at Palm Oil Analytics, told AgriCensus.

Malaysian palm oil production for July had been widely expected to be lower on the month due to lower oil yields and labour shortages at palm plantations, the report said.

Output estimates for Malaysian palm oil had shown a drop in production for July, ranging from minus 3% to minus 7% on the month, according to a market survey carried out by Singapore-based bank UOB KayHian.

Palm Oil Analytics had downwardly revised its full year CPO production forecast for 2021, expecting it to come in within a range of 18.75-18.9M tonnes, down from the original estimate of 19M tonnes, AgriCensus wrote.

Refinitiv Commodities Research had also revised its Malaysian palm oil production outlook to 18.2M tonnes, down 1% from the previous update, due to labour shortages at palm plantations, according to the report.

The United States Department of Agriculture (USDA) had forecast Malaysian CPO in 2021 at 19.7M tonnes, an increase of 8% on the year, the report said.