Malaysian palm oil futures sank to a more-than-one-year low on Monday after an unexpected rise in palm end-stocks, with projections of a bumper crop of competing oilseeds sparking fears that supply would overwhelm global demand. Palm oil stocks in Malaysia were 1.5 percent higher at the end of July at 1.68 million tonnes, according to a monthly report from the Malaysian Palm Oil Board, with strong output adding to stocks that were actually expected to drop.
Jitters of dwindling demand for the tropical commodity also dragged on the palm market, which slid to 2,174 ringgit - a level last seen on July 30, 2013 - in late Monday trade. Cargo surveyor Intertek Testing Services reported that exports of Malaysian palm oil products between August 1-10 fell 22.2 percent to 347,094 tonnes compared to the same period in July, as purchases to China and Europe fell.
Another cargo surveyor, Societe Generale de Surveillance, showed that exports for the same period fell 19.6 percent. "Looks like the high production cycle which started in March is continuing after a setback in June," said a trader with a local commodities firm in Kuala Lumpur. Production in July was initially expected to be capped due to a Muslim festival which slowed down harvesting as plantation workers went on holiday.
"High stocks with projections of further rise in supplies, along with poor demand, is to apply pressure (on prices) along with the bearish technicals." The benchmark October contract on the Bursa Malaysia Derivatives Exchange slipped 2.5 percent to 2,177 ringgit ($681) per tonne by the day's close, with prices ranging between 2,240 and 2,174 ringgit intra-day.
Total traded volume stood at 47,549 lots of 25 tonnes, higher than the usual 35,000 lots. Analysts said crude palm oil production in Indonesia likely rose 10-15 percent in the first half of 2015, as reported by several plantation companies. "On the other hand, so far, the biodiesel initiatives in Indonesia and Malaysia also disappointingly fell short of expectations," TA Research said in a note.
Technicals showed that Malaysian palm oil is expected to test a support at 2,220 ringgit per tonne, a break below which will lead to a further loss to 2,202 ringgit, said Reuters market analyst Wang Tao. Market players said the ongoing bearish sentiment in soybean oil as well as an expected recovery in palm oil production have piled pressure on prices that have tumbled more than 18 percent so far this year. "We have three bumper crops in a row - Brazil, Argentina and the US - producing more crop in already sluggish demand markets," said Lingam Supramaniam, director at Malaysia-based commodities firm Pelindung Bestari. The US soyoil contract for December fell 1.4 percent in late Asian trade, while the most active January soybean oil contract on the Dalian Commodities Exchange shed 0.1 percent.
