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Malaysian palm oil futures fell to their lowest in over a week on Friday as volatile crude oil prices and lacklustre export demand dampened buying interest in the tropical oil, dragging the contract to its biggest weekly drop in seven. Palm, the world's most traded vegetable oil, has been propped up by monsoon flooding, which dented output and stockpiles in No.2 grower Malaysia, but traders remain wary as global commodity markets are roiled by an oil price rout.
The ringgit's decline to its weakest since April 2009 was not enough to limit losses in time, traders said. "Although the ringgit is weak, the market could not keep up. After prices broke 2,300 ringgit, heavy liquidation and the stop-loss order were triggered," said one trader with a foreign commodities firm in Kuala Lumpur. "The ringgit depreciating and floods will bring down output and end-stocks, but you have problems in the world. Demand is not picking up," said a trader with a foreign commodities firm in Kuala Lumpur. The benchmark April contract was down 1.4 percent to 2,311 ringgit ($650) per tonne to close at their lowest since Jan. 7. It fell 1.6 percent this week, its biggest drop since end-November, after failing to build on three straight weeks of gains. Traded volume stood at 78,450 lots of 25 tonnes, more than double the typical 35,000 lots.
Market participants say palm has struggled over the past two weeks to get a firm grip above 2,380 ringgit, as concern over dwindling demand from key buyers chased away follow-through buying. The contract hit a six-month high of 2,394 ringgit late on Thursday but dropped as low as 2,298 ringgit on Friday.Cargo surveyors reported that overseas sales of Malaysian palm products fell between 12 and 13 percent in the first half of January compared to December.
Analysts say flooding in Sarawak, Malaysia's second-largest palm producing state, may not be as damaging to output as initially feared, when thunderstorms and rain triggered flash floods across some plantations.
"Many areas in Sarawak remain flooded following heavy continuous rainfall over the last three days," said Affin Hwang Capital Research in a note on Wednesday.
"However, as yet, the operations of the timber and plantation companies have not been seriously affected by the floods." The seasonal downturn in output which typically occurs around October-to-March will "only be exacerbated by the disruptions in collection, transport and processing caused by the lingering effects of the flooding," the bureau said in report. "Reportedly, in some areas, it may take up to two-to-three months to repair damaged infrastructure."
The benchmark April contract was down 2.0 percent to 2,273 ringgit ($629) per tonne by Wednesday's close, with prices touching 2,270 ringgit, their lowest since Jan. 5. Traded volume was at 66,335 lots of 25 tonnes, nearly double the usual average of 35,000 lots. The Malaysian ringgit hit a near six-year low of 3.6250 per dollar as Fitch Ratings warned of a downgrade to the country's rating, following government moves to cut its 2015 growth forecast, trim spending and widen its fiscal deficit target. The slump in the ringgit also stoked worries over a gloomy global economic outlook that could hurt commodity prices, including palm oil, the world's most traded vegetable oil.
Elsewhere, Indonesian crude palm oil output is estimated to have fallen around 6 percent in December from November, hit by a seasonal downturn in production, a Reuters survey of leading industry officials showed. Growers in Malaysia's Borneo region are bracing for the impact of monsoon rains that have triggered flooding in some parts of top palm-growing state Sabah. Malaysia's meteorological department flashed "orange stage" warnings on its website late on Thursday for heavy rain over Sarawak until Jan. 17.
In other markets, Brent crude oil futures rose above $49 a barrel on Friday as the IEA said the tide of recent price slumps may turn, although analysts said a strong rebound anytime soon was unlikely as global output continues to outweigh demand. In competing vegetable oil markets, the U.S. soyoil contract for March was nearly flat in late Asian trade, while the most active May soybean oil contract on the Dalian Commodity Exchange eased 0.1 percent.
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