Malaysian crude palm oil futures dropped as much as 3.3 per cent to touch a new 3-month low yesterday as signs that a developing El Nino episode had eased and prospects of higher production.
Traders say the market is in bearish momentum, having lost more than 5 per cent so far in the second half of this year and fears that Asian festival demand will not be significant, leading to a build-up in stocks.
“It’s a clutch of bearish news. El Nino weakening, the sense that Chinese and Indian demand will not be so fantastic, despite the fact that India did not slap on import taxes, especially on palm oil,” said a trader with a domestic commodities brokerage.
The benchmark September contract on Bursa Malaysia’s Derivatives Exchange fell as much as RM70 to RM2,059 (US$581.8) per tonne, a level unseen since April 2, before settling at RM2,069.
Volumes doubled to 22,484 lots of 25 tonnes versus the usual 10,000 lots.
A key factor in the development of an El Nino weather pattern eased in June although the monsoon over India will remain weak as the Pacific climate continues to move towards an El Nino, said Australia’s weather bureau.
“It’s a mixed story but its cannot be ascertained as yet.
Weaker Indian monsoon means more demand but the ports in India are still full,” said another trader.
“Easing El Nino means production may have a chance of recovering very, very strongly.”
The El Nino condition, which brings hotter weather to top palm producers Malaysia and Indonesia that can sap palm oil yields 12-18 months later, can also impede India’s June-Sept monsoon.
Oil, which struggled above US$64 a barrel, also weighed on some global vegetable oil markets, as worries about the economy and consumption persisted.
The most-active January soybean oil contract on China’s Dalian Exchange inched lower although US soyoil futures rose due to government report on crop conditions that was below expectations.
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