Asian Crude Palm Oil Falls; Discount to Soyoil to Boost Demand 13.08.2012
DJ. Crude palm oil futures on Malaysia's derivatives exchange fell Monday to the lowest level in 10 months, as investors liquidated positions amid worries about a buildup in palm oil inventories at a time when CPO production is seasonally higher.
The benchmark October contract on Bursa Malaysia Derivatives fell as much as 2% to 2,825 ringgits a ton during afternoon trade, a level not seen since Oct. 15. The contract ended 0.4% lower at MYR2,871/ton.
Stockpiles in Malaysia rose to 2.0 million tons as of July 31, climbing quickly from a 14-month low of 1.70 million tons on the back of strong production and lower CPO demand.
"As prices have breached major support levels today, I think palm oil's downside is limited for now as Malaysia's palm exports are likely to pick up thanks to the recently-announced additional tax-free CPO quota," a trading executive in Kuala Lumpur told Dow Jones Newswires.
Toward end-July, the government allowed the export of an extra 2 million tons of CPO at zero duty to prevent a build-up in stocks in the high production months that would have weighed on prices.
The decision takes the overall duty-free export quota to 5.6 million tons for 2012, equivalent to 30% of Malaysia's overall CPO output.
Optimistic market participants also said inventory levels will eventually stabilize or ease as price-sensitive consumers soon switch from soyoil, which is commanding a wide premium to its cheaper tropical rival.
"The substitution effect from poor U.S. soybean output could kick in as early as next month, when [the U.S.] harvesting season begins," OSK Investment Bank analyst Alvin Tai said in a note Monday.
Palm oil stockpiles had risen to 2.0 million tons as of July 31, climbing quickly from a 14-month low of 1.70 million tons June 30, the Malaysian Palm Oil Board said in a crop report Friday.
CBOT soybean and soyoil prices have risen in recent weeks on the back of expectations of reduced supplies due to drought in major oilseed-growing areas of thee U.S. Midwest, with soyoil prices on the Chicago Board of Trade opening up a premium of $300/ton against palm oil compared with a historical average around $100/ton.
In the cash market, refined palm olein for August was offered $5 higher at $955/ton while cash CPO for prompt shipment was offered unchanged at MYR2,750/ton.
Open interest on the BMD was 141,988 lots, versus 142,561 lots Friday. One lot is equivalent to 25 tons.
A total of 32,729 lots of CPO were traded versus 28,006 lots Friday.
Ending BMD CPO futures prices in MYR/ton: Month Close Previous Change High Low Aug'12 2,817 2,830 -13 2,890 2,700 Sep'12 2,830 2,843 -13 2,851 2,780 Oct'12 2,871 2,882 -11 2,903 2,825 Nov'12 2,900 2,909 -9 2,926 2,857