COLUMN-Palm oil's bullish factors will eventually win: Clyde Russell

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, Jan 16 (Reuters) - Prices of palm oil in second largest producer Malaysia remain marooned near three-year lows as the vegetable oil is caught between opposing fundamentals that may take several months to resolve themselves.

However, over the next six months, the bearish factors appear more likely to dissipate, while the bullish ones will remain in place.

On the bearish side of the ledger are record inventories in Malaysia, a rapid slowdown in Chinese imports as new customs inspection rules take effect, and demand in Europe that is still soft because of economic weakness.

On the positive side are robust and growing Indian imports, a zero export tax by Malaysia and 2013 output that is expected to be steady, or only slightly higher.

Add to this the shape of the curve of the futures traded in Kuala Lumpur, which is still in a relatively rare contango, meaning prices for forward months trade at a premium to those for immediate delivery.

The curve is more usually relatively flat to mildly backwardated, but has been in contango since the current bout of price weakness started in the third quarter of last year.

Palm oil is also still trading at a steep discount to soy oil, a complementary product whose price palm oil has historically tracked fairly closely.

The most-traded contract on the Bursa Malaysia closed at 2,371 ringgit ($786) a tonne on Jan. 15, while soy oil in Chicago was at $1,134 a tonne, giving it a premium of $348 a tonne.

While this is down from the $372 a tonne premium reached on Dec. 13, it's still substantially wider than normal and well above the $87 a tonne the spread narrowed to in May 2009, when the price of palm oil was recovering in line with the global economy after the 2008 recession.

It's likely that both palm oil's contango in the futures curve and its wide discount to soy oil will reverse in time, but first the short-term factors that are capping prices will have to be worked through.

Malaysia's palm oil stocks reached a record in December, marking their fourth consecutive high.

Stocks climbed 2.4 percent to 2.62 million tonnes, and the surfeit of inventories is acting as a drag on prices, even though the northern winter is a seasonally slower time for exports of palm oil, which tends to solidify in colder weather.

But hopes for a rapid depletion of the inventories, as Malaysia kept the export tax at zero in January, and holds it there for February, have also been dealt a blow by China.

New procedures for examining imports of edible products are expected to have slashed Chinese imports in January, perhaps to less than half the 654,232 tonnes imported in November, the latest month for which customs data is available.

However, the question has to be whether China's actions are a temporary factor or a permanent change in its import patterns.

The likelihood is that eventually importers, suppliers and customs will adapt to the new measures and imports will reach at least prior levels, meaning the current problems, and their associated drag on prices, are likely to ease in coming months.

But as shown by a slump of 22.2 percent in Malaysia's palm oil exports from Jan. 1 to 15 versus the same period in December, the impact of the China regulations has been dramatic.

The decline was due to the halving of exports to China, Malaysia's largest customer, as well as a sharp fall in cargoes to Europe, although this is more likely to be seasonal.

On the plus side of the ledger for palm oil, India imported the most in at least three years in December, buying 783,091 tonnes, a jump of 27 percent from November.

A lack of domestic supplies in India, coupled with low international prices, boosted imports, and both factors are still at work.

On the supply side, both Malaysia and Indonesia, the top producers of palm oil, expect modest to slightly higher output in 2013, meaning output is unlikely to swamp demand.

However, for prices to rise, the key will be ongoing strength in Indian imports and a resolution to the slowdown in China's customs processing measures.

(Editing by Clarence Fernandez)