Malaysian palm oil futures dropped more than 1 percent to their lowest in nearly two years on Tuesday, weighed down by the government's decision to maintain an export tax for July and due to lacklustre demand. The benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange dropped 1.44 percent to 2,326 ringgit ($583.25 per tonne by the close of trade, the lowest since August, 2016.
Prices dropped as low as 2,323 ringgit during the day and trading volumes stood at 59,383 lots of 25 tonnes each. Malaysia, the world's second-largest palm oil producer, kept its crude palm oil export tax at 5 percent in July. The tax was resumed in May, after a four-month hiatus to increase demand and boost prices.
"Going forward the market is very concerned about demand, because it's not picking up as it should. Production is also supposed pick up and that will put further pressure on inventories and prices," said David Ng of Phillip Futures. Malaysia's exports of palm oil, an ingredient used in goods ranging from soap to chocolate, between June 1 and June 10 stood at 324,947 tonnes, down 20 percent from the same period a month earlier. Palm oil prices track the performances of other edible oils, as they compete for a share in the global vegetable oils market.
On the Dalian Commodity Exchange, the September soyabean oil contract dropped 0.66 percent, while the July soyabean oil contract on the Chicago Board of Trade was also down 0.23 percent.
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