KUALA LUMPUR, Oct 23: Malaysian palm oil futures surged on Tuesday on news that the government planned to subsidise insurance costs for oil shipments to Pakistan and the Gulf as premiums rose due to the US-led strikes on Afghanistan.

Primary Industries Minister Lim Keng Yaik said insurance surcharges to the war-risk areas had risen $1-$5 for a ton of palm oil and in most cases, exporters were only informed of the higher charges 48 hours before their cargo reached port.

The market’s benchmark third-month January contract languishing in the negative zone since Friday, jumped 18 ringgit on Lim’s announcement.

Volume was a hefty 2055 lots, the bulk of it flooding in during the last hour after the minister spoke.

Lim said Pakistan and the Middle East region account for about 2.5 million tons, or 25 per cent of Malaysia’s total palm oil exports, and represented a crucial market.

He said exporters would put a higher price on their palm oil if they knew exactly what the insurance surcharge for the war-risk areas were.

Right now, all they know is there is a premium variation of between $1 and $5 a ton, he said, adding that charging more could also make palm oil uncompetitive against soyoil, its main rival.

Trading in physical palm oil followed futures. Crude palm oil for October was bid/asked at 850/860 ringgit a ton in the southern region. The contract was traded at 850.

November (south) was 860/870. It was traded at 850-860.

The central region market for October was heard 860/865, and traded at 850-850. November (central) saw bid/ask at 865/875 and traded at 865-875.—Reuters