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Palm oil prices under pressure as vegetable oil complex moves lower

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Palm oil prices under pressure as vegetable oil complex moves lower

Highlights

Demand weakened by high prices

Market awaits decision on Indonesian export levy, Indian import duty

The August palm oil contract on the Bursa Malaysia plunged 10% to MR 3,300/mt ($802.14/mt) at midday close June 14, weighed down by a weaker vegetable oil complex and expectations of a production recovery in key producing regions Malaysia and Indonesia amid slowing demand.

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The last time the lower limit was hit was Jan. 28, 2020, when the nascent fear over the prevalence of COVID-19 manifested itself in a sell-off in the commodity markets.

Declines in Asia followed a sharp fall in CBOT Soybean oil futures June 11 over concerns that biofuel blending requirements in the US would be reduced by the Environmental Protection Agency, as well as rains across the US Midwest beneficial for crops. "The absence of fresh demand and liquidation of long positions due to triggering of margin calls" drove the correction in BMD CPO futures, said Anilkumar Bagani of Mumbai-based brokerage Sunvin Group. "The persistent downward price movement in Argentinian soy oil and Ukrainian sun oil has added further pressure."

Meanwhile, physical palm prices have also edged lower. At the midday close June 14, CPO FOB Indonesia for June loading was offered at $1,090/mt, down 3% from offers at the full-day close June 11.

Lower palm prices on June 11 could have also contributed to the lower CBOT soybean oil futures.

The August palm oil contract on the BMD closed MR186 lower on the day at MR3,658/mt June 11. S&P Global Platts assessed CPO FOB Indonesia for July $45/mt lower on the day at $1,045/mt, with CPO CFR West Coast India assessed $47.50/mt lower at $1,020/mt. Buyers had chosen to remain conservative in view of falling prices, with no trades reported for the day.

Most market participants had anticipated the weakness in palm oil and soybean oil prices this week, citing the historically low basis in Argentina. According to Rajesh Modi of Singapore-based brokerage Sprint Exim, Argentinian soybean oil basis was as low as minus 1,600 points/lb to the July futures on the CBOT at one point. Prices on the board were sharply higher but physical prices did not follow suit, which ultimately weakened the futures. Palm prices have now fallen tracking weakness in soybean oil."

Another market participant added that not only had high vegetable prices dented demand, but the wait at both destination and origin over the announcement of the import duty and export levy respectively had sidelined buyers, meaning prices were unlikely to maintain prevailing levels.

Market participants in India have been awaiting a possible reduction of up to 10% in the CPO import duty, while sellers in the Indonesian market are anticipating a reduction of $100/mt on the export levy, though no official news on either tariff has been announced yet.