Malaysian palm futures slipped to a two-week low on Tuesday as lacklustre demand and a grim outlook on global commodity markets piled pressure, but prices pulled up in late trade as they clung onto support from the ringgit that slumped to near 6-year lows. Industry experts say palm prices face a volatile year in 2015 and will be driven by global demand factors, including uncertain market movements in crude and rival edible oils. The Malaysian Palm Oil Board predicted that in its worst scenario, prices could drop to six-year lows of 1,820 ringgit a tonne.
"Going forward, we expect limited near-term catalysts as we gather that a possible weak El Nino and lacklustre biodiesel demand would limit immediate CPO price upside," Kenanga Investment Bank said in a note. "...we believe that CPO prices are likely to soften in H2 2015 due to recovery in production as well as the effects of deteriorating crude oil prices and strengthening US dollar."
The benchmark April contract gained 0.5 percent to 2,320 ringgit ($642) per tonne by Tuesday's close, after falling to 2,297 ringgit in early trade, its lowest since January 7. Traded volume stood at 48,169 lots of 25 tonnes, above the usual 35,000 lots. The ringgit weakened to an April 2009 low of 3.6140 per US dollar, after the government adjusted its economic growth targets and increased its fiscal deficit forecast to cope with sliding oil prices.
Analysts say while unfavourable weather in top growers Indonesia and Malaysia could tighten palm oil supply temporarily, the damage to output will not be as bad as initially feared with any El Nino weather phenomenon expected to be weak. The Australian Bureau of Meteorology on Tuesday said that weather models show a low chance of an El Nino after indicators of the climate event eased in recent weeks.
In Malaysia, worries over monsoon flooding have begun to ease, despite occasional warnings by the country's weather office for rains over parts of palm-growing Sarawak. "The flood issues are fading and have been mostly factored in," said a trader with a foreign commodities brokerage in Kuala Lumpur.