PETALING JAYA: Weather-related concerns drove crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Exchange to their highest in over five weeks yesterday, as traders raced to cover positions in anticipation of heavy rains disrupting production in Malaysia and Indonesia.

Contracts for February 2012 delivery rose to RM3,185 per tonne yesterday, the highest level since Nov 18 when they closed at RM3,248 per tonne. Climate-related impact on the production of soyabean, a rival oilseed, in Argentina and Brazil also shored up prices.

According to Amir Mokhtar, a fund manager with Apex Investment Services Sdn Bhd, yesterday’s CPO price increase was not unexpected, given that current consensus is for the commodity to head upward well into the first half of 2012, with the more bullish ones projecting CPO to reach RM4,000 per tonne by June 30 next year.

Amir is looking at CPO reaching only RM3,600 per tonne over the next six months, though expecting demand for the commodity to be dampened by slower economic growth outlook next year.

Contracts for Febuary 2012 delivery rose to the highest level since Nov 18.

“The CPO price will shoot up, but not so high and so fast to reach RM4,000 per tonne in just six months. The highest it could go is around RM3,600 to RM3,700 per tonne due to several catalysts such as the shrinking supply of palm oil and the expected monsoon season which has flooded major oil palm growing areas,” he told The Edge Financial Daily in a phone interview yesterday.

According to news reports, several areas in Johor, Pahang, Sabah and Sarawak, which are the major oil palm growing states in Malaysia are still being inundated with flood waters.

Malaysia is the second largest producer of palm oil in the world after Indonesia. Several major oil palm growing areas in Kalimantan and Sumatra in the republic are also flooded.

The Malaysian Meteorological Department, in a statement on Tuesday, warned that Kudat and West Coast in Sabah as well as Kuching and Samarahan in Sarawak would receive intermittent heavy rain, which could cause floods in low-lying areas.

Alvin Tai, an analyst with OSK Research, said in a report yesterday that he expects the CPO price to average around RM3,000 per tonne next year, which is higher than RM2,700 per tonne initially estimated for 2012.

“Given the diminished downside volatility amid the limited upside due to lacklustre demand and abundant supply expected for next year, we believe that the price of palm oil will enter a period of very dull price action as it continues to bottom. This should follow the current episode of CPO price strength, which we think is seasonal and believe will be sustained into early 1Q of 2012,” he wrote.

In an earlier report dated Dec 14, Jasmaliha Jaafar of MIDF Research expects the CPO price to hover around RM2,900 to RM3,100 and remain stable until 1Q12, on expectation of lower output.

The relatively higher average CPO price this year has been a major boost for most plantation companies in the region. Prices have averaged about RM3,200 per tonne year-to-date, compared with last year’s average of about RM2,700 per tonne.