Palm oil futures set to suffer second consecutive monthly loss after hitting lowest level in nearly 12 weeks

Malaysian palm futures continued to fall for the fourth session in a row on Wednesday, and were headed towards a second month-long drop. They were weighed down due to weakness in other edible oils, Indonesia’s production forecast, and a strong Ringgit.

At closing, the benchmark palm oil contract on Bursa Malaysia's Derivatives Exchange for January delivery fell 65 ringgit or 1.51% to 4,252 Ringgit ($1,006.63) per metric ton, its lowest close since August 7.

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, fell by 1.86% while soyoil prices dropped by 0.88%. Chicago Board of Trade soyoil prices fell 0.73%.

As palm oil competes to gain a share in the global vegetable oil market, 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 due to the strengthening of the ringgit (the palm industry's trade currency) by 0.24%.

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)