Palm Oil Drops to 4-1/2 Month Low on Demand Worries

KUALA LUMPUR: Malaysian palm oil futures slid to their lowest in four-and-a-half months on Monday as the ringgit continued to advance and amid worries that festival-driven demand will fizzle out faster than expected.

The benchmark August contract on the Bursa Malaysia Derivatives Exchange touched 2,490 ringgit in early trade, its lowest since Jan. 15, before settling at 2,496 ringgit ($779) per tonne by the midday break, down 0.8 percent.

Total traded volume stood at 20,607 lots of 25 tonnes, well above the average 12,500 lots.

“The Ramadan demand has quickly faded. Exports are moving down compared to the first 15 days,” said a trader with a local commodities brokerage.

Shipments of Malaysian palm oil products during May 1-25 rose 14 percent from a month ago to 1.09 million tonnes, cargo surveyor Intertek Testing Services showed, slowing down from a 23 percent jump recorded in the first half of May.

The Muslim festival of Ramadan and Eid al-Fitr, celebrated with communal fasting and feasting from end-June onwards, typically drives up consumption of edible oils especially in India, Pakistan, and the Middle East.

But investors are fretting that demand for palm oil, used as cooking oil and as an ingredient in foods such as cookies and chocolate, will not be strong enough to outstrip rising production of the tropical oil and trim 1.77 million tonnes of Malaysian palm stocks.

“For the full month, people are anticipating a 10 percent rise on month – it won’t be that extraordinary to reduce stocks, knowing that in a few weeks time production will keep rising,” the Kuala Lumpur-based trader added.

The Malaysian ringgit gained 0.19 percent to trade at 3.2060 against the US dollar on Monday, with some bank traders pegging the currency to rise past 3.2000. A stronger ringgit makes palm feedstock more expensive for overseas buyers and refiners, curbing buying interest.

Technicals, however, were bullish. Malaysian palm oil may gain further to 2,545 ringgit per tonne as its rebound from the May 21 low of 2,492 ringgit may extend, said Reuters market analyst Wang Tao.

In other markets, Brent crude edged down towards $110 a barrel on Monday, dipping further from last week’s two-and-a-half month high as worries over Ukraine eased slightly after its presidential election.

In other competing vegetable oil markets, the most active September soybean oil contract on the Dalian Commodities Exchange had lost 0.4 percent in early Asian trade. The US soy markets were closed for a public holiday.

Copyright Reuters, 2014

Source : Business Recorder

Leave a Reply