Palm oil drops to a 12-week low due to weak competitors; second monthly decline is expected

Malaysian palm futures fell for the fourth session in a row on Wednesday, and were headed for a second month-long decline, due to a weakening of rival edible oils and Indonesia's production forecast, as well as a strong ringgit.

By midday, the benchmark palm oil contract on Bursa Malaysia's Derivatives exchange for January delivery had fallen 72 ringgit or 1.67% to 4,245 Ringgit ($1,004.97) per metric ton.

The contract reached its lowest level since August 7 during the session.

Anilkumar bagani, head of research at Mumbai-based Sunvin Group, said: "Bursa Malaysia CPO Futures opened gap lower in continuation of weakness that started early in this week because of uncertainty over Indonesian biodiesel mandate and GAPKI’s forecast of an increase of 10% in Indonesian palm production this year."

GAPKI, the Indonesian palm oil association, said that Indonesia's palm-oil production could reach 56 million metric tonnes this year. This is higher than previous projections.

He said that the contract was under pressure due to a sell-off of palm olein, soyoil and other commodities at Dalian Commodity Exchange as well as a weakness in Chicago overnight soyoil futures.

Dalian's palm oil contract, which is the most active contract in Dalian, fell by 2.22%. Chicago Board of Trade soyoil prices fell 0.53%.

As palm oil competes to gain a share in the global vegetable oils industry, it tracks the price changes of competing edible oils.

The palm oil stock in Indonesia fell slightly to 2,54 million metric tonnes in August, down 1% from a month ago. A decline in exports was offset by a fall in production, according to the palm oil association GAPKI.

Oil prices continued to fall, extending a 3-day decline, as market pressure was exerted by doubts over the effectiveness of Russia's sanctions and a possible increase in OPEC+ production.

Palm oil is less appealing as a biodiesel feedstock due to the weaker crude oil futures.

Palm oil is now more expensive to buyers who hold foreign currencies because the ringgit (the palm industry's currency) has strengthened by 0.17%.

Wang Tao, a technical analyst, predicts that palm oil FCPOc3 will stabilise at the support level of 4,269 Ringgit per metric tonne and then bounce. ($1 = 4.2240 ringgit)

(source: Reuters)