Palm oil drops to weakest in 5 weeks as demand wanes

[KUALA LUMPUR] Malaysian palm oil futures fell for a third session on Monday, dropping to their lowest in nearly five weeks as poor demand from major buyers sparked concern that palm's use in food and fuel industries may continue to slump in coming months.

Palm prices ran up 14 per cent from December to a six-month high of RM2,394 by Jan 15 after monsoon flooding wreaked havoc in parts of Malaysia, the second-biggest grower, inundating estates and destroying infrastructure.

But market players say worries about the devastation have cooled, and even if growers expect another big drop in output this month, waning export demand from India, China and Europe plus the rout in crude oil could offset that.

"Production is down temporarily, but soon it will rise again, and people are worried about how demand will be, with the poor economic growth," said a trader with a foreign commodities firm in Kuala Lumpur.

"We don't know whether China will buy equal or less amounts of edible oil from last year. Biofuel demand is bad, biodiesel operators can't do anything," the trader added.

"These are the two main concerns keeping prices under pressure." The benchmark April contract had dropped 2.5 per cent to RM2,175 (US$601) per tonne by Monday's close, after touching RM2,170 in late trade, the lowest since Dec 23.

Malaysian exports of palm oil products fell 17.7 per cent to 886,189 tonnes between Jan 1-25 from the same period a month before, according to cargo surveyor Intertek Testing Services.

Another cargo surveyor, Societe Generale de Surveillance, reported that exports for the same period slid 19 per cent.

The Malaysian Palm Oil Association, a growers' group, estimates crude palm oil production fell 24.3 per cent between Jan 1 and 20. Output from Sarawak alone, Malaysia's second-largest palm-growing state, was forecast to have dropped more than 28 per cent in the same period.

Oil prices declined on Monday, with US crude falling close to a nearly six-year low, as Saudi Arabia's new King Salman moved to assuage fears of an unstable transition and any policy change in the world's largest oil exporter.

In other vegetable oil markets, the US soyoil contract for March fell 1.1 per cent in late Asian trade. The most active May soybean oil contract on the Dalian Commodity Exchange lost 1.0 per cent.

REUTERS