Asia Oils-India slows palm buying, China on the sidelines

KUALA LUMPUR, Feb 5 (Reuters) - India halved its palm shipments this week after two months of frenzied buying, while top consumer China stayed on the sidelines as traders assess whether stocks need to be replenished after the Lunar New Year.

India, the second largest vegetable oil importer after China, struck deals to buy 20,000 tonnes of palm oil products at $535-$555 a tonne C&F (cost and freight), and shipments are expected to taper off for the rest of February.

The South Asian country usually buys 55,000 a week, which include a mix of crude palm oil and refined palm olein.

"India imported more than half-a-million tonnes in the last two months and now there is a price disparity between imported oils and domestic sources," said a top Indian dealer.

Even state-run trading companies slowed their purchases with MMTC Ltd (MMTC.BO: Quote, Profile, Research) and State Trading Corp of India Ltd. (STCI.BO: Quote, Profile, Research) issuing much smaller tenders for palm oil, which is produced mainly in Indonesia and Malaysia.

"Part of the slowdown in Indian imports is due to the incoming rapeseed crop and the fact that prices are not going move very wildly in the next few weeks," said a Malaysian trader with dealings in India.

Rapeseed output in India is initially estimated to be around 6 million tonnes in the current oil year starting in October, up 20 percent from the previous year, industry officials say.

"The increase is significant because the rapeseed hectarage has increased by more than 10 percent because farmers wanted to take advantage of the high oilseed prices last year," said B.V. Mehta, executive director of the Solvent Extractor's Association of India.

Rapeseed oil prices have been mostly steady this week at 980 -1,050 rupees ($20-$20.11) per 15-kg tin as trading was light in Jaipur, the capital of the northern state of Rajasthan where most of the rapeseed is harvested, Indian dealers said.

India grows two oilseed crops, mainly soybean and groundnut in the winter season, and rapeseed and groundnut in the summer season.

CHINA WAITS FOR NEXT WEEK

China was mostly unsighted in palm oil markets as traders needed to assess the drawdown in stocks after the Lunar New Year holidays last month.

But exporters in Malaysia and Indonesia said China would need more palm cargoes in the next few months as the vegetable oil is better for cooking in the summer season than soyoil.

February soyoil imports were likely to remain at January levels of about 400,000 tonnes, a plunge of 42 percent from December, according to an official survey released on Friday. [ID:nPEK3006]

"There is interest in buying palm oil but the deals will start coming in next week when most of the trading companies are back in action after the long Chinese New Year holidays," said the head of palm oil trading at an international house in Malaysia.

One trade source said Chinese traders would usually buy more than 250,000 tonnes of refined palm olein per month from Malaysia, starting in March, with demand slowly edging up in February.

China bought around 155,690-170,680 tonnes of palm oil in January, cargo surveyors Intertek Testing Services and Societe Generale de Surveillance said last week.

Physical crude palm oil prices in Malaysia have risen roughly 5 percent to 1,870 -1,880 ringgit ($518-$521) per tonne for February delivery from last week on fars of tight supply and increased hedging on the uncertain crop outlook in South America, traders said.

Gold Rises as Investors Seek Store of Value; Silver Advances

Feb. 5 (Bloomberg) -- Gold rose the most this week on speculation the global recession will boost demand for precious metals as a store of value. Silver also gained.

Goldman Sachs Group Inc. said yesterday gold will rise to $1,000 an ounce within three months, up 43 percent from the bank’s previous forecast. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, rose to a record 859.5 metric tons yesterday. Gold has rallied 34 percent after touching a 13-month low on Oct. 24.

“Gold is telling you that all paper assets are suspect,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “As the recession deepens, there’s significant flows into gold as an asset class or a currency that cannot vanish overnight.”

Gold futures for April delivery rose $12, or 1.3 percent, to $914.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain since Jan. 30. The metal climbed 1.1 percent yesterday.

Silver futures for March delivery rose 28 cents, or 2.2 percent, to $12.75 an ounce. The metal has climbed 13 percent this year, while gold is up 3.4.

The SPDR Gold Trust is the seventh-largest holder of bullion behind central banks and the International Monetary Fund, according to data from the World Gold Council. The U.S. Federal Reserve is the largest holder.

Equities Slump

Assets in the SPDR Gold Trust rose 8.1 percent in January as the price of gold gained 5 percent. The Standard & Poor’s 500 Index lost 8.6 percent last month, while the Reuters/Jefferies CRB Index of 19 raw materials declined 4 percent.

Governments worldwide are lowering interest rates and spending trillions of dollars to revive their economies, which will lead to inflation and boost gold’s allure, said Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey.

“If it were restricted to just one country, gold might be a little less resilient,” Gotthelf said. “You’re looking at a global meltdown. It looks like all nations will follow the U.S.’s lead in re-inflating their economies. The smart money is moving into gold.”

The Bank of England today slashed its benchmark lending rate to 1 percent, the lowest ever. The Federal Reserve last month kept the overnight lending rate at zero to 0.25 percent.

The U.S. Senate is weighing a stimulus package that tops $900 billion. Since the second half of 2007, banks worldwide have posted more than $1 trillion in writedowns and losses related to the credit crisis.

Platinum futures for April delivery rose $12.30, or 1.3 percent, to $982 an ounce on the Nymex.

Palladium futures for March delivery gained $4.20, or 2.1 percent, to $202.20 an ounce. Earlier, the price reached $205.90, the highest since Jan. 7.

Oil, Gasoline Rise on Higher U.S. Fuel Demand, Equity Rally

Feb. 5 (Bloomberg) -- Crude oil rose and gasoline climbed to a 12-week high after a government report showed U.S. fuel consumption increased and the stock market rallied.

Demand for fuels during the past four weeks averaged 19.5 million barrels a day, up 0.6 percent from the average a week before, the Energy Department said yesterday. Oil gained as much as 2.3 percent after equities rebounded and an analyst predicted Goldman Sachs Group Inc. and Morgan Stanley will repay the government funds they received.

“The consumption numbers in yesterday’s report are being taken as a sign by some that the worst is over,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis.

Crude oil for March delivery rose 85 cents, or 2.1 percent, to $41.17 a barrel at 2:47 p.m. on the New York Mercantile Exchange, the highest settlement since Jan. 30. Prices are down 7.7 percent this year and 53 percent from a year ago.

Gasoline futures for March delivery climbed 5.64 cents, or 4.6 percent, to $1.2748 a gallon in New York, the highest settlement since Nov. 13. Heating oil increased 4.02 cents, or 3 percent, to end the session at $1.3672 a gallon.

The average U.S. pump price of regular gasoline rose 0.7 cent to $1.907 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. Prices have declined 54 percent from the record $4.114 a gallon reached on July 17.

‘Tagging Along’

“The oil market has been tagging along with stocks,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We are seeing strength in gasoline and other commodities, which is giving the market a boost.”

Goldman Sachs and Morgan Stanley led financial companies in the S&P 500 to a 3.8 percent advance. David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said the securities firms will repay the $10 billion they each received from the U.S. government as soon as possible.

The S&P 500 rose 1.6 percent to 845.85. The index lost as much as 1.5 percent in early trading after initial jobless claims unexpectedly jumped to a 26-year high.

U.S. crude-oil supplies increased 7.2 million barrels to 346.1 million last week, according to the Energy Department. Inventories have gained in 17 of the past 19 weeks, leaving stockpiles 15 percent higher than the five-year average for the period, the department said.

Brent crude oil for March settlement rose $2.31, or 5.2 percent, to end the session at $46.46 a barrel on London’s ICE Futures Europe exchange. Brent futures traded at a $5.29 premium over West Texas Intermediate, the crude oil grade that’s traded in New York.

Brent Premium

“European crude is tighter than U.S. crude, and that should support Brent relative to WTI,” said Mike Wittner, head of oil research at Societe General SA in London.

The price of oil for delivery in April is $4.59 a barrel higher than for March, up from a $3.92 premium yesterday. December futures are $13.90 higher than the front-month contract, versus $13.29 yesterday. This structure, in which the future month’s price is higher than the one before it, is known as contango, and is often an indicator of oversupply.

“Rising crude oil inventories are weighing down on the front-month contracts,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “The Brent premium suggests that the global market isn’t overstocked.”

Volume in electronic trading on the exchange was 401,089 contracts as of 3:10 p.m. in New York. Volume totaled 474,433 contracts yesterday, down 3.6 percent from the average over the past three months. Open interest yesterday was 1.24 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

U.S. Unemployment

U.S. unemployment climbed to 7.5 percent, and payrolls fell by 540,000, the 13th consecutive decrease, according to the median estimate in a Bloomberg News survey before Labor Department figures tomorrow.

“The employment data tomorrow will probably be abysmal,” O’Grady said. “This could easily send the oil market lower.”

The Organization of Petroleum Exporting Countries decided on Dec. 17 to trim production by 9 percent beginning on Jan. 1. The 12-member group pumped an average 28.565 million barrels a day last month, down 1.05 million from December, according to a Bloomberg News survey of oil companies, producers and analysts.

Yen Trades Near Four-Week Low Versus Dollar as Stocks Advance

Feb. 6 (Bloomberg) -- The yen traded near a four-week low against the dollar as a gain in U.S. stocks reduced demand for the Japanese currency as a haven from financial turmoil.

The pound rose yesterday to a two-week high versus the greenback on bets the Bank of England will pause in cutting borrowing costs after it reduced its benchmark rate to a record low of 1 percent. The euro traded near a two-month low after European Central Bank President Jean-Claude Trichet signaled he may cut interest rates next month. U.S. payrolls fell by more than a half million, a report is forecast to show today.

“People are jumping on risk trades,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut.

Japan’s currency traded at 91.17 per dollar at 7:09 a.m. in Tokyo, after falling 2 percent yesterday. It broke through a two-week range of about 88 to 90, reaching 92.25, the weakest level since Jan. 8. The yen was at 116.56 versus the euro following a 1.5 percent decline. The euro traded at $1.2788 after reaching $1.2706 on Feb. 2, the lowest level since Dec. 5.

The yen dropped 3.1 percent to 133.54 against the pound and 3.8 percent to 9.28 versus South Africa’s rand as a 1.6 percent gain in the Standard & Poor’s 500 Index encouraged investors to sell Japan’s currency and buy higher-yielding assets.

Dodd on Accounting

Japan’s yen also weakened on speculation U.S. regulators will change an accounting rule governing assets banks hold, limiting their losses, according to Kim.

Senate Banking Committee Chairman Christopher Dodd told reporters on Feb. 4 that the so-called mark-to-market rule might need to be changed temporarily.

‘There’s some talk about the changes in the mark-to-market accounting rule,” said Kim. “But I still think there are enough signs that this rally of risky assets should last.”

U.S. employers probably cut 540,000 jobs in January, following a reduction of 524,000 in the prior month, according to the median forecast of 75 economists surveyed by Bloomberg News. The Labor Department is scheduled to release the non-farm payroll report at 8:30 a.m. in Washington.

The ruble declined to 41.02 against a target basket of dollars and euros yesterday, beyond the level of 41 that the central bank pledged to defend two weeks ago. The ruble may slide as much as 18 percent against the dollar by the middle of this year, Morgan Stanley said.

Euro Versus Krone

Europe’s currency dropped 2.1 percent to 12.60 rand yesterday and 1.4 percent to 8.7621 Norwegian kroner on concern the slump in Eastern Europe may further drag down growth in the 16-nation region that shares the single currency. The euro dropped 1.5 percent versus the dollar on Feb. 4 after Fitch cut Russia’s debt rating.

“The continued selling pressure on the euro is mainly driven by the problems in Eastern Europe,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG.

ECB policy makers left the main refinancing rate unchanged at 2 percent yesterday, in line with the median forecast of 53 economists surveyed by Bloomberg News. The market may be “right” to bet on a reduction of a half-percentage point in March, while cutting to zero isn’t “appropriate at this stage,” Trichet told reporters following the decision.

“Trichet is mildly dovish,” said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. “He wants to leave the door open for another cut.”

ECB Outlook

Investors added to bets the ECB will reduce borrowing costs again later this year. The yield on the three-month Euribor interest rate futures contract due in March fell to 1.76 percent yesterday, down from 1.84 percent a week ago.

“Clearly there are more rate cuts to come,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Europe is in a pretty deep hole. That will keep the euro under pressure.” Franulovich expected the ECB to lower rates to 0.75 percent by the end of the third quarter.

The pound rose 1.1 percent to $1.4625 yesterday on speculation the Bank of England will suspend lowering borrowing costs after it reduced the rate by a half-percentage point to the lowest level in the bank’s 315-year history.

“My impression is that the Bank of England is suggesting this is as much as they wanted to do for now,” said James McCormick, London-based global head of foreign-exchange and local-markets strategy at Citigroup Inc. “Policy makers have moved things a lot already. We are moving into, at least, a short period of rates on hold. The pound may be reaching the bottom.”