Palm oil drops most in 2 weeks as record high prices cut demand

PALM oil slumped the most in more than two weeks on weaker soybean oil and fossil fuel markets after data showed that the surge in prices to a record had reduced demand for the tropical oil from top importers.

Futures tumbled as much as 2.2% to 5,471 ringgit a tonne, the lowest intraday level since Jan 28, before trimming the decline to close at RM5,523. The market was trading for the first time after closing for the Lunar New Year holiday at midday Monday. Soybean oil in Chicago and crude petroleum in New York dropped about 1%.

Malaysian exports in January shrank 26% from a month earlier, with shipments to the Indian subcontinent and China contracting 27% and 29% respectively, according to Intertek Testing Services data.

Prices need to adjust to remain competitive as buyers are likely to shift to soybean oil and sunflower oil, said Anilkumar Bagani, research head of Mumbai-based Sunvin Group. China, the second-biggest importer, is closed all week for the Chinese New Year holiday.

Investors are now awaiting the full-month production data from the Malaysian Palm Oil Association, a plantation group, Bagani said. In another sign of demand destruction from high prices, albeit on a smaller scale, Thailand said this week it will cut its ratio for biodiesel blending through the end of March.

Adding to negative sentiment are expectations that domestic prices in top grower Indonesia will drop after the government set low prices for local supplies of crude palm oil and refined, bleached and deodorised palm olein, said Paramalingam Supramaniam, director at Selangor-based broker Pelindung Bestari.

“There are some price adjustments in Indonesia,” said Paramalingam. “It’s a tad lower and many are of the opinion that domestic prices there can get lower, which has resulted in a sell-off on Bursa Malaysia Derivatives.”

BLOOMBERG

Tags: China, prices, Malaysia, palm oil