Palm Oil Faces Weak Competition, Suffers Setbacks in Market Share
The Malaysian palm oil futures market experienced losses for the second consecutive session on Monday, as a combination of factors put pressure on the commodity's prices.
The September contract, which started trading at 4,042 ringgit per metric ton, fell 20 ringgit on the Bursa Malaysia Derivatives Exchange, marking a 0.49% decrease at the start of trade. This decline follows a 0.75% fall in Dalian's palm oil market on the same day.
The losses were influenced by weakness in rival edible oils and crude oil. Dalian's soyoil and Chicago's soybean oil have seen significant drops, affecting palm oil's market share in the global vegetable oils market. Weaker crude oil futures also reduce the attractiveness of palm oil as a biodiesel feedstock, making it less competitive when crude prices fall.
The Malaysian ringgit's value against the US dollar also impacts palm oil prices. A weaker ringgit can make palm oil cheaper for foreign buyers, somewhat mitigating price drops, but a stronger ringgit could increase costs for them, further reducing demand.
Indonesia's policies, such as diverting crude palm oil to domestic biodiesel production, create a paradox where global supply remains ample, but competition keeps Malaysian prices capped. Despite this, Indonesia's export strategies can influence global supply dynamics.
While recent production rebounds have led to record-high inventories in Malaysia, there are signs of inventory reductions due to robust export demand. This can slightly buoy prices, but the overall impact is limited by the global context of rival oils and crude.
The September contract may trade in the range of 4,008 to 4,032 ringgit per metric ton, according to Reuters technical analyst Wang Tao, who has identified a five-wave cycle from 3,947 ringgit for the palm oil FCPOc3.
In summary, the combination of weak rival oils, falling crude oil prices, and competitive export policies contributes to the losses in the Malaysian palm oil futures market. The market will likely continue to be influenced by these factors in the coming days.
[1] Reuters, "Malaysian palm oil futures drop for second straight session on July 7," July 7, 2023. [2] Reuters, "Palm oil futures drop as crude oil prices weaken and rival oils fall," July 7, 2023. [3] Reuters, "Malaysian ringgit's strength impacts palm oil prices," July 7, 2023.
- Despite the promising news of inventory reductions due to robust export demand, the sports of palm oil futures continue to face pressure from weaker crude oil prices and the competition in the global vegetable oils market.
- Meanwhile, the latest news highlights a decline in the September contract for palm oil, influenced by the drop in Dalian's palm oil market and the significant falls in Dalian's soyoil and Chicago's soybean oil.
