Palm oil and soyaoil markets tumbled on Tuesday after China unveiled plans to impose food price controls and tame inflation that has accelerated in the world's No. 2 importer of vegetable oils. Traders say China's plan to also crack down on speculation in agricultural commodities could be a precursor to an interest rate hike to cool food-driven inflation in the Asia country.
-- Palm oil exports may slow on stronger dollar
Malaysian palm oil fell as much as 3.3 percent to more than one-week lows of 3,260 ringgit ($1,040) per tonne - a level unseen since November 4. US soyaoil gave up 2.5 percent, while China's most active September 2011 contract on the Dalian Commodity Exchange closed 2 percent lower in volatile trade.
"The policy triggered short term profit-taking in many commodities, but has no impact on the overall supply-demand scenario in China," said Zhang Juan Cong, an oil analyst with Dadi Futures in China's southern city of Hangzhou. China's consumer price inflation sped to a 25-month high in October, rising 4.4 percent from a year earlier and fuelling talk of an interest rate hike.
But traders in Malaysia and Indonesia were concerned demand from China may slow on these measures at a time when the country should be stockpiling ahead of the Lunar New Year holidays in early February. That could pressure the palm oil markets, although prices may still be firm on prospects of tight supplies thanks to the monsoon rains. "Malaysian palm oil will be affected, but we are expecting floods in December to hit the key oil palm growing areas and support prices," said one trader in Malaysia.
A strong US dollar may slow palm oil as well as soyaoil shipments priced in the greenback since it makes the edible oil more expensive for buyers using other currencies. Traders expect Malaysian palm oil exports to slow in the second half of November after orders in the first half jumped as much as 28 percent compared to a month ago. Palm oil prices may well remain firm as heavy rains move towards the key palmoil-producing states in central and southern Malaysia by this month and in December, traders said.