KUALA LUMPUR: Malaysian palm oil futures edged lower on Friday and were headed for their second straight weekly drop, as fresh falls in crude dented palm’s biodiesel demand, with traders citing further pressure from weakness in comparative Chinese markets.
Brent crude extended losses below $70 a barrel on Friday, with Saudi Arabia cutting monthly prices for crude it sells to the United States and Asia, preventing the contract from staging a recovery after a near 13-percent plunge last week.
Weak crude oil prices diminish biodiesel margins and make palm a less attractive option for non-mandatory blending.
“Persistent weaknesses in crude oil prices and RBD Dalian may pressure market sentiment and keep prices lower,” said Lingam Supramaniam, director at Pelindung Bestari, a Malaysia-based commodities firm. RBD refers to palm that has been refined, bleached and deodorized.
“A decisive break below 2,150 ringgit could drag prices to 2,137-2,140 ringgit,” he said, adding that cautious sentiment ahead of the weekend may cap any rebound at 2,180 ringgit.
By the midday break, the benchmark February contract on the Bursa Malaysia Derivatives Exchange had edged down 0.1 percent to 2,165 ringgit ($624) per tonne, with prices tight at 2,154-2,177 ringgit.
Palm oil has recovered some losses from earlier in the week but was still unable to pull up completely. The steep falls were triggered by OPEC’s decision not to curb output despite a supply glut, which saw crude oil markets plummet.
Total traded volume stood at 19,418 lots of 25 tonnes, above the usual 12,500 lots.
Looking ahead, analysts say the impact of drought earlier this year could hurt palm oil supply in top growers Indonesia and Malaysia.
“We believe palm oil supply growth will be even slower than in 2014 due to adverse weather effects,” RHB Research said in a note on Friday.
The analysts said palm production in Sumatra and West Malaysia in the first quarter of 2015 would likely suffer from the extreme dryness in the same quarter in 2014.
“We believe most excitement will take place in H2 when production starts to suffer from the 12-month impact of this year’s dry weather,” RHB added, and kept forecasts for prices to average at 2,400 ringgit in 2014 before rising to 2,500 ringgit in 2015.
In competing vegetable oil markets, the US soyoil contract for December rose 0.1 percent in early Asian trade, while the most active May soybean oil contract on the Dalian Commodity Exchange gained 0.1 percent.