Malaysian palm oil futures suffered their sharpest decline in four sessions on Friday, as the market was weighed down by a drop in Chinese soyaoil prices. The benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange closed down 0.6 percent at 2,497 ringgit ($583.55) a tonne. Palm also saw a third consecutive weekly decline, falling 2.3 percent.
Traded volumes on Friday totalled 45,712 lots of 25 tonnes each. "Palm declined due to soyabean oil, which looks very weak," said a Kuala Lumpur-based trader, referring to soyaoil on China's Dalian Commodity Exchange. Palm oil prices track the performance of related edible oils, as they compete for a share in the global vegetable oils market. The September soyabean oil contract on the Dalian Commodity Exchange was last down 0.2 percent, trading at historical lows in line with China's soyabean crushing margins which are at their weakest since September 2014.
Steep falls in Chinese edible oil prices due to a supply glut have knocked soyabean processing margins deep into negative territory in the past three months. "The fall in crude oil also added to bearish sentiment," the trader said. Palm oil prices are also affected by crude oil prices as it is used as feedstock to make biodiesel, a fuel substitute for crude oil.
Another trader in Kuala Lumpur had earlier said palm's gains are not expected to last long as production is set to recover in the coming months. Palm oil output in Indonesia and Malaysia, which account for over 80 percent of global production, is set to rise in the second half of this year due to seasonal demand, and as it recovers from the crop-damaging effects of El Nino. Malaysian output for April rose 5.7 percent from March to 1.55 million tonnes, according to industry regulator data earlier this month. In related oils, soyabean oil on the Chicago Board of Trade dropped 0.6 percent, while Dalian's September contract for palm olein was down 0.3 percent.