Malaysian crude palm oil futures dropped 3.8 percent to a near 2-week low after sharp falls in China's stock markets and on fears exports may fall below expectations, traders said. Taking a cue from a second steep drop in the Shanghai bourse, benchmark November palm oil futures on the Bursa Malaysia Derivatives Exchange dropped as much as 91 ringgit to 2,284 ringgit ($646.1), a level unseen since August 6.
The market then settled at 2,299 ringgit per tonne. Policy worries recently made the Shanghai stock market slide a focus of global markets with Wednesday's losses triggering a similar reaction in markets across the rest of Asia and Europe.
Fears in the palm oil market were compounded by market talk that August 1-20 palm oil exports would be 5-10 percent lower than the same period a month ago that ranged between 875,330 and 913,153 tonnes. Cargo surveyors are due to report August 1-20 data on Thursday.
"Palm oil is strong fundamentally because stock levels are still tight but external factors are becoming more of an influence especially what happens in China because China is a buyer of palm oil," said a trader with a local commodities broker. "But talk of weaker exports could be true but I don't think it will be that significant a fall."
Palm oil futures have been supported by strong festival demand starting with Muslim fasting season of Ramadan in late August but traders were divided on news that Middle East buyers had covered most of their requirements for the festival. China and India will celebrate the Mid-Autumn festival and Diwali, both of which fall in early October.
But funds could help boost palm oil along with other vegetable oil prices in anticipation of a pick-up in demand for food in emerging markets and a greater competitiveness of biofuel for diesel if crude oil prices soar, analysts say. Oil fell below $69 a barrel on Wednesday as the slide in Chinese markets sent doubts through global markets about the strength of the world economic recovery.
Other vegetable oil markets followed crude down due to their increasing use as a biodiesel feedstock. US soyoil for September delivery fell 0.8 percent but the most active May 2009 soyoil contract on China's Dalian Commodities Exchange tumbled 2 percent.
INDONESIA PALM TRADE In Indonesia, the Jakarta-based state marketing centre, which normally sells palm oil from state plantations, sold palm oil at a top price of 7,323 rupiah ($0.735) per kg, down from 7,468 rupiah a day earlier. Producers in Medan, home to Indonesia's main palm oil export port of Belawan, sold palm oil at 7,329 rupiah per kg, against 7,420-7,480 rupiah a day ago. Refiners in Jakarta offered refined, bleached, deodorised (RBD) palm oil, used as cooking oil, at 7,450 rupiah per kg, down from 7,500 rupiah on Tuesday.
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