KUALA LUMPUR, May 17: Crude palm oil (CPO) prices on Malaysia’s Derivatives Exchange are expected to hold firm next week on an expected surge in demand after prices dropped 0.5 per cent over the past week, dealers said.

CPO prices for June closed at 1,249 ringgit ($328.7) per ton at the end of the week.

The market was surprisingly very firm this week and playing at the top level, a dealer with a local brokerage said.

It was very supportive, technically, and remained largely on the upper side.

The market is holding very well because of an understanding that export is going to improve further in the next few months, he said.

The dealer said prices were also expected to rise due to an expected seasonal drop in palm oil production in the months of May, June and July.

Another dealer said CPO prices would continue to be steady into the next week, with market trends remaining friendly.

The dealer said China’s expected drop in vegetable oil harvest was likely to boost the CPO market as the republic would be increasing its intake of palm oil.

In the futures market, the June contract dropped six ringgit over the week to settle at 1,249 ringgit per ton. The July contract rose six ringgit to 1,259 ringgit while the August contract added eight ringgit to 1,261 ringgit per ton.

The average daily price for June was 1,254 ringgit per ton.

Malaysia’s palm oil industry is expected to get a boost from China’s likely squeeze in vegetable oil supply in the coming months, a report said on Friday.

Malaysian Palm Oil Association chief executive M.R. Chandran said Malaysia and Indonesia, the world’s top producers and exporters of palm oil, would enjoy increased purchases after China’s expected rapeseed harvest shortfall of between 500,000 tonnes (550,000 short tons) to 750,000 tons.

This will put pressure on the republic to increase its intake of palm oil from Malaysia and Indonesia in the next month or so, Chandran was quoted by the Business Times newspaper as saying.

Probably for this reason, China held back purchases earlier this year... it wanted to wait until rapeseed harvesting started, then decide on imports, he said, adding he was confident total exports to China would hit 1.6 million to 1.8 million tons this year.

China, Malaysia’s third biggest buyer last year at 1.28 million tons, has so far issued import licences for only 300,000 tons of palm oil.

Dealers said palm oil prices surged over the past month with the market remaining largely on an upward trend on speculation the republic was due to aggressively buy palm oil.—AFP