Palm oil futures plummet to 8-month low amid vegetable oils sell-off

The benchmark palm oil futures contract on Malaysia's commodity exchange fell over 122 points or 3% during afternoon trade May 31, reaching its lowest level since October 2022, with analysts attributing the drop to sluggish demand, weakness in related vegetable oil markets and falling crude oil prices.

The most actively traded August crude palm oil contract was down 3% to MR3,281/mt ($712.31/mt) during the mid-day session on the Bursa Malaysia Derivatives exchange May 31 after plummeting 4% to close at MR3,405/mt on May 30.

"A sharp decline in crude oil prices and a persistent bearish trend in Black Sea sunflower oil prices has triggered a sell-off in related vegetable oils," Anilkumar Bagani, research head at Mumbai-based vegetable oil brokerage Sunvin Group said, adding that accelerated soybean planting pressured the US soybean complex.

Similarly, on China's Dalian Commodity Exchange, the most active palm oil contract fell 4.7% to Yuan 6,328/mt ($878.65/mt), while the equivalent soybean oil contract fell 4% to Yuan 6,758/mt May 31.

"The persistent weakness in the Chicago soybean oil is dragging prices in the palm oil market lower," David Ng, senior trader at Malaysia-based IcebergX told S&P Global Commodity Insights. "Sentiment also battered by concerns over rising output and sluggish demand in coming weeks."

On May 30, Platts assessed the crude palm oil FOB Indonesia at $825/mt, the lowest since Oct. 8, for front-month loading. According to S&P Global data, cash prices of Brazilian soybean oil FOB Paranaguá are at their lowest since October 2020 on muted demand.

Weak fundamentals

Malaysia's palm oil production in the first 20 days of May is expected to be about 9% higher on the month, according to the Malaysian Palm Oil Association.

Meanwhile, exports in May are around 1.17 million mt, down marginally from 1.18 million mt in April, according to data from cargo surveyor Intertek Services.

Worries about the US debt ceiling pact, reported friction between Russia and OPEC+ over production cuts and weak China data have also pulled crude oil futures down in the week, according to analysts. Vegetable oils is a common biodiesel feedstock, and a dip in crude oil prices lowers biofuel demand.

"The price reversal since March in the energy, grains and oilseeds complex is led by price demand elasticity, and this is more transparent in the palm oil markets," Marcello Cultrera, director at commodities consultancy Apricus 8 in Singapore told S&P Global.

In the Americas, CBOT soybean oil price for July fell to $0.46/lb, down almost 6% on May 30. In Canada, ICE Canola futures for November also dropped 4% over the same period to a more than two-year low of $628.1/mt, with participants pointing to macroeconomic concerns and a broader sell-off in the oilseeds complex as a key reason.