“The overall vegetable oil sector is effectively swimming in supply, or will be swimming in supply by the time we get to the end of the year,” Singapore-based Gordon said in a phone interview. The most-active price on Bursa Malaysia Derivatives fell to RM2,045 yesterday, the lowest level since October 2009. It last traded below RM2,000 ($630) in March of that year.
Malaysian palm oil futures fell for a seventh-consecutive session to their lowest level in nearly five years on Thursday, with traders citing talk that major consumers in China and India had defaulted on cargoes and prospects of near-record U.S. soybean production weighed on the market.
The downtrend in palm prices would likely continue “until all the negative newsflows are over,” CIMB Investment Bank plantations analyst Ivy Ng said, adding that reports of weak palm exports, weakening soybean prices and crude prices had all hit palm prices. “Palm is just dragged along with that.”
Any recovery from the downturn would probably be subdued during the peak-production season, Ng said, adding that this would last until around mid-November.
Buyers were allegedly unable to open letters of credit and unable to renegotiate discounts with sellers, the trader said.
Palm oil tumbled into a bear market last month as favorable weather in the U.S. spurred forecasts for a record crop of soybeans, which can be crushed to provide an alternative oil. Palm also slumped as demand for biofuels missed expectations, forecasts for an El Nino weather pattern, which can disrupt supplies, were scaled back, and the ringgit strengthened. Lower prices will help keep global food costs in check, while hurting earnings at growers.
Exports of Malaysian palm oil products for Aug. 1-20 fell 5.39 percent to 822,026 tonnes from the 868,843 tonnes shipped during July 1-20, cargo surveyor Intertek Testing Services said. According to cargo surveyor Societe Generale de Surveillance (SGS), palm oil product exports over the same period fell 8.3 percent.
Chicago soybeans dipped for a second session as a closely watched crop tour reported near-record yields in key U.S. oilseed-producing states. The U.S. Department of Agriculture in a report on Monday rated the soybean crop condition as 71 percent good-to-excellent, up from 70 percent a week earlier.
Malaysia’s ringgit climbed 3.4 percent this year, Asia’s strongest performance after Indonesia’s rupiah, as the Southeast Asian country’s economy expanded at the fastest pace in six quarters in the three months to June and current-account data beat estimates. A stronger ringgit makes palm oil purchases more expensive for holders of other currencies.
“Psychologically out of 10 people I speak to, eight are saying the market will go down to 1,900 ringgit per tonne, and that’s when the bonafide buyers will be buying,” one trader said.
“The lows are getting lower… Inevitably you will start getting a lot of defaults which is bad for the entire market.”