Palm ends three-day rally weighed down by crude, supply fears cap losses

KUALA LUMPUR: Malaysian palm oil futures on Thursday snapped a three-day winning run that had pushed them to a record high, weighed down by crude oil prices, although losses were capped by worries over tighter supply.

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange ended down 27 ringgit, or 0.55%, at 4,845 ringgit ($1,158.54) a tonne, also taking cues from overnight losses in rival soyoil.

Oil prices dropped for a second session, as the United States said it was considering selling oil from its strategic reserves and as Russia said it was ready to stabilise the natural gas market.

If the weakness in crude oil persists longer, it can further pressurise the vegetable oil markets as their rally was mainly driven by the rise in energy prices and freight costs, said Anilkumar Bagani, research head of Mumbai-based vegetable oils broker Sunvin Group.

Palm rallies 4% to record high on stronger crude, supply squeeze

Weaker crude oil futures make palm a less attractive option for biodiesel feedstock.

Demand slowed in top palm buyer India due to deep negative import and processing margins and surging inventories after record imports last month, Bagani said.

The Malaysian Palm Oil Association estimated September production fell 1.44% from the month before to 1.68 million tonnes, according to traders.

Import demand for palm oil in 2021/22 is expected to edge higher on the back of favourable trade policies and as large-scale vaccination rollouts lift demand, Refinitiv Commodities Research said in a note.

"With a typical low palm oil production cycle ahead, and expectations for steady-to-strong demand from key importers, the pace of ending-stock build-up is expected to slow," Refinitiv said.

Soyoil prices on the Chicago Board of Trade were up 0.2%, after declining 1.3% in the previous session. The Dalian exchange is closed for a public holiday and will reopen on Friday.