Malaysian palm oil rebounded from lows to end virtually flat on Wednesday as short-covering emerged after knee-jerk selling sparked by new import tariffs in top destination India. The crude palm oil futures market fell 1 percent, below the key psychological support of 1,300 ringgit a tonne, after the tariffs announced by New Delhi on Tuesday. But renewed concerns about dwindling crop prospects from February led to short covering in the afternoon, setting the stage for a recovery.
At the close, the new benchmark third-month crude palm oil contract on Bursar Malaysia Derivatives, May, settled at 1,308 ringgit ($344.21) a tonne, just one ringgit lower from Tuesday.
The intrude high was 1,312 ringgit and low 1,290. "True, the market was spooked by India but I guess many realised that whatever those higher tariffs are, they will only be felt in the longer run," said a trader.
"The crop worries are, however, immediate." The official Malaysian Palm Oil Board said on Tuesday that palm oil output fell 12.3 percent in January from December, while stocks to be carried forward to this month rose by only 1.76 percent signalling a weaker supply.
The trend is expected to continue through the first quarter as the country's palm crops undergo a seasonal decline in oil production. Dealers had said on Tuesday that the slower output should see palm oil futures well supported at above 1,300 ringgit a tonne.
But that forecast seemed doomed after India announced higher import tariffs after the market closed in Kuala Lumpur. New Delhi said it had cut base import prices for palm oils up to 15 percent and hiked import tariffs by a similar quantum.
The world's largest buyer of edible oils left duties on palm oil's main rival, soyaoil, unchanged, however.
"Immediately, there is no net effect from this new structure but it's still bearish over the long term as what India has done is raise the import tariffs altogether while just reducing the base import prices for now," a trader said, explaining the move.
"This means that they can always raise the base import price later, making the landed price of palm oil in India effectively higher." On Wednesday's market was also initially affected by an overnight drop in prices of US soyaoil futures.
Soya and palm compete for similar export destinations and their prices often move in step. March soyaoil on the Chicago Board of Trade settled 0.35 cent lower at 19.62 cents per lb on Tuesday, with deferred contracts down 0.19 at 0.44 cent.
In physical crude palm oil on Wednesday, the February contract saw bids at 1,315 ringgit a tonne and offers closing at 1,320 ringgit in Malaysia's southern and central regions unchanged from Tuesday.
Trades were reported at 1,305-1,315 ringgit in both regions.
PALM OIL FUTURES:
February (south): 1320.
Open/High/Low: 1297/1312/1290.
Previous closes: 1320.
PALM OIL PHYSICALS:
April (3rd month): 1308.
Previous settlement: 1310.
FUTURES:
New Benchmark May down 1 ringgit at 1,308 ringgit ($344.21) a tonne.
PHYSICALS: February offers flat at 1,320 ringgit a tonne.
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