With or without the current haze situation enveloping Sumatra, Malaysia and Singapore, Ramadan period next month will serve as a near-term catalyst for crude palm oil (CPO) prices.
The CPO contract for September delivery lost 1.9 per cent to RM2,394 a tonne on Bursa Malaysia Derivatives yesterday.
Maybank Kim Eng Research yesterday suggested that the prolonged fire due to below average rainfall may reduce soil water availability and oil palm yields will be negatively affected.
Even without the current haze situation, CPO prices are still expected to pick up due to stocking up activities during Ramadan period, other analysts said.
Muslims are expected to start fasting from July 9 till August 7 this year. Traditionally, the strong Middle East orders and rising local consumption will support the demand of palm oil.
"We do not see any near term catalyst other than demand for the Ramadan and prices would be further supported by decline in inventories next month," said JF Apex Securities..
The statement has some basis as last week independent cargo surveyor, Intertek, said exports from Malaysia climbed 16 per cent to 928,810 tonnes in the first 20 days of this month.
Data released by Malaysian Palm Oil Board also showed a decline in inventories last month to 1.8 million tonnes, indicating a recovery in prices.
The market has a strong anticipation as well as CPO prices have rebounded from RM2,250 in May to RM2,466 per tonne in mid-June, the highest closing since April, according to Bloomberg data.
JF Apex expects average CPO prices to be around RM2,450 for 2013, which is slightly lower compared to RM2,860 in 2012.
"Hopefully, CPO prices will climb to RM2,500 in July," she said.
As the Ramadan period ends, CPO prices may again close at the RM2,400 range and pick up slightly year-end to RM2,628 due to lower production in winter season.
Last year, CPO prices slipped below RM3,000 per tonne, and had an impact on the earnings of plantation companies.
The analyst added that it will not be a better year for plantation sector as "earnings will be weaker because average price would be still lower than previous year".
The average price of CPO last year was RM2,860 per tonne.