Malaysian palm oil slumps to 7-1/2 month lows

A whole lot of investors are unwinding long positions as quickly as they can, the flow of bearish news is getting overpowering, a trader says

MALAYSIAN crude palm oil futures dived nearly 6 per cent to plumb more than 7-1/2-month lows today as weakness in crude oil seeped into vegetable oil markets across the globe.

Malaysian palm prices have been hit hard with almost all its gains wiped out this year due to a continuous stream of bearish news ranging from a delay in the launch of biodiesel mandates in the domestic market to Jakarta cutting palm export taxes.

The benchmark October contract dropped as much as RM191 to RM3,061 (US$945) per tonne, the lowest since December 31. By the mid-day break, the contract was trading down RM190 at RM3,062.

“A whole lot of investors are unwinding long positions as quickly as they can, the flow of bearish news is getting overpowering,” said a trader with a foreign brokerage.

Indonesia has cut export taxes for palm oil products in August to bring them in line with international prices, the trade ministry said yesterday, a move which will see more demand shifting from Malaysia, traders said.

“The Jakarta tax cut and comments from the higher ups that biodiesel is not feasible this year have added to the overall downside that was started by lower crude oil and soyoil prices, along with high inventories of palm oil,” said another trader.

Malaysian Plantation and Commodities Minister Datuk Peter Chin said yesterday the country will not introduce a subsidised 2 per cent palm-based biodiesel in the domestic demand this year despite a recent correction in the palm oil market as prices were still too high.

Oil prices held near a six-week low today, as worries increased over dwindling US demand at the same time as fears eased that Hurricane Dolly would deal a major blow to oil and gas supply.

A rebound in the dollar on the back of comments from a Federal Reserve official suggesting US interest rates may have to rise also reduced the appeal of commodities, prompting investors to exit oil.

Vegetable oil markets suffered in Asian trade. Soyoil for August delivery at the Chicago Board of Trade lost 1.8 per cent while the most-active January 2009 soyoil contract at China’s Dalian Exchange dived 3.5 per cent. - Reuters