Bursa Malaysia crude palm oil futures face emerging market demand weakness

Malaysia one-ringgit noteMalaysia one-ringgit note

Dimmer emerging market demand expectations are placing crude palm oil futures on the Bursa Malaysia Derivatives exchange under pressure from weaker currencies and seasonal trade patterns.

Bursa Malaysia front-month palm oil futures for November settled up 0.3 percent at 2,222 ringgit (US$542) a metric ton on Tuesday after hitting a one-week low on Monday. Trading volumes were 45,547 lots of 25 metric tons.

Maybank Kim Eng analyst Ong Chee Ting in a note to clients on August 16 said there is concern that weaker seasonal demand ahead from the Northern Hemisphere, as cold weather affects palm oil specifications and production factors, has led to a neutral stance on listed regional palm oil firms.

“We may possibly look at stronger output recovery only in the fourth quarter of 2018 for Malaysia. But such late boom may not bode well for (a) CPO (crude palm oil) price recovery,” the analyst said.

Emerging markets led by Turkey have faced sharply weaker currencies in August on balance of payment concerns. The world’s top edible oil importer, India, is being closely watched in that regard as the rupee crossed 70 to the U.S. dollar this week.

“Palm oil demand has been soft in 2018. One big reason has been the weakness of importer currencies,” said analyst Dorab Mistry in an August 16 note to clients. “I do not think the palm market has appreciated how much edible (oil) demand we have lost in 2018.”

Elsewhere, trade talks between the U.S. and China appear to have made some progress. Malaysia and other palm oil exporters have fared better because of tariffs placed by China on some U.S. farm products, including soybeans, in response to U.S. levies on Chinese goods. But there is industry concern that major edible oil buyer China could face an economic slowdown and weaker buying of edible oils because of the trade spat.

Bu support for palm oil could come ahead of Indonesia’s mandatory implementation of mixing 20 percent of biodiesel across more refined fuel products to be implemented on September 1.

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