Malaysian crude palm oil futures tumbled as much as 3.8 per cent to hit a 10-week low yesterday as the prospect of slower Indian demand fuelled speculative selling.
Traders have pegged Indian stocks of imported palm oil at ports at slightly over 500,000 tonnes, which has led the country to slow imports this month.
“The fundamentals are pricing in weaker demand but this is too much, the market has oversold purely on speculation this week,” a trader with a local commodities brokerage said.
The benchmark September contract on Bursa Malaysia’s Derivatives Exchange dropped as much RM91 to RM2,284, a level unseen since April 10, before settling at RM2,299. Overall volume surged to 18,192 lots of 25 tonnes each from the usual 10,000 lots.
Open interest has fallen to about 75,000 lots this week from about 81,000 lots the week before as investors liquidated long positions on fears the recent global commodity rally was overdone, traders said.
Traders fear that the US dollar, despite hovering near lows struck the previous day, will strengthen against world currencies and sap demand for refined palm oil products which are usually priced in US dollars.
Malaysian exports of refined palm olein, used in cooking oil in China and India, weakened, with cargo surveyor Societe Generale de Surveillance reporting a 9.8 per cent fall to 272,276 tonnes in June 1-15 from the same period a month earlier.
Other traders kept an eye out for the brewing El Nino weather condition, which the Australian Bureau of Meteorology said had more than a 50 per cent chance of developing.
El Nino brings hotter weather and less rain to top producers Malaysia and Indonesia and can aggravate biological tree stress and lead to lower palm oil yields 12 months later.
But investment bank Credit Suisse said the current low yield period could end in June given that it only lasts for six to nine months, although top planters like IOI Corp and Asiatic have not shown an improvement in production.
“We believe this could be attributed to the location (of these companies’) plantations in Sabah and Johor (states) (which) were particularly adversely affected in early 2009 due to excessive rainfall,” Credit Suisse said in a note to clients.
Palm oil output growth in Malaysia will stay weak for the next two years because an aggressive replanting scheme and hot weather will aggravate yield stress in oil palms, an industry regulator said on Tuesday.
In the Malaysian physical market, no trades were done for June delivery in the southern and central regions as sellers were hoping the market would recover, one dealer said.
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