Malaysian crude palm oil futures fell 2.2 percent on Monday, hitting one-week lows as the US crude market dropped below $90 a barrel and cargo surveyors announced dismal export numbers. Palm oil prices, which reached a historic high of 3,420 ringgit last week, had hurt exports for the vegetable oil, commonly used in products ranging from body lotion to ice cream.
And with crude oil falling past $90, demand for the more-expensive rival, palm-based biodiesel, has taken a bigger hit, traders said. The benchmark April contract on the Bursa Malaysia Derivatives Exchange settled down 73 ringgit to 3,243 ringgit ($986) per tonne, after going as low as 3,232 ringgit, a level not seen since January 11.
"Crude is drawing back into negative territory and exports are weak both these two factors make it essential for a correction in palm oil prices," said a head trader in a foreign commodities brokerage. "There will be further liquidation in the coming days."
Other traded months fell between 55 and 85 ringgit. Overall trade stood at 11,071 lots of 25 tonnes each. Oil fell more than $1 to a one-month low below $89 a barrel on Monday, weighed down by concerns that a recession in top consumer the United States could drag down other economies and hurt oil demand.
Exports of Malaysian palm oil products for January 1-20 fell 40.02 percent to 567,583 tonnes from 946,210 tonnes shipped between December 1 and 20, cargo surveyor Intertek Testing Services said on Monday. Another cargo surveyor, Societe Generale de Surveillance, said exports for the same period fell 35.8 percent to 619,078 tonnes.
Traders said much of the decline in exports was due a weakness in demand from the biodiesel sector. "Palm-based biodiesel is much more expensive than mineral diesel and companies are slowing down on their purchases," said an official from a leading plantation firm.
Crude palm oil now costs nearly $1,000 a tonne, while petroleum-based diesel fuel in Singapore trades at $766. The European Union's tough stand on palm-biodiesel imports is unlikely to reduce prices and booming demand for the commodity, top analyst Dorab Mistry said on Monday. "It will simply mean that other oils will be used for biodiesel and palm will fill in the gap for edible demand," Mistry told Reuters in an interview.
Traders estimate around 60-70 percent of current export demand comes from the food sector. In Malaysia's physical market, crude palm oil for January shipment in the southern region was quoted at 3,260/3,265 ringgit a tonne. Trades were done between 3,255 and 3,270 ringgit.