Palm oil falls; clocks best yearly surge in a decade

Malaysian palm oil futures slipped on the last day of 2019 on Tuesday on profit booking, but registered its biggest yearly jump in a decade on expectations of lower production and higher consumption in top producers Indonesia and Malaysia.

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange closed to trade down 82 ringgit, or 2.6%, to 3,046 ringgit ($744.93), after four consecutive sessions of gains. Palm oil prices rose 44% jump for the year to trade at an average price of 2,560 riggit, their best performance since 2009.

"The dynamics today was profit taking and squaring of positions ahead of holiday," said Sathia Varqa, owner and co-founder of Singapore-based Palm Oil Analytics.

Palm oil's strong price could continue into early 2020, but is unlikely to sustain due to higher supply driven by better weather conditions and fertiliser input, Fitch Ratings said in a report on Monday. Palm oil had rallied in final quarter of 2019 on declining stockpiles and expectations of a production drop in the first half of 2020 due to poor rainfall and lower fertiliser usage in top producers Malaysia and Indonesia earlier this year.

Output in December likely declined sharper than expected, according to traders. Industry bodies Malaysian Palm Oil Association and Southern Peninsular Palm Oil Millers Association forecast month-on-month falls of 16% and 27%, respectively, traders said.

December exports in Malaysia fell between 4.9% and 6.7%, cargo surveyors Intertek Testing Services and Amspec Malaysia said on Tuesday. However, domestic consumption in Malaysia and Indonesia is expected to increase as both countries push for higher palm content requirements in their 2020 bio-diesel programmes.

The Dalian Commodity Exchange's most-active soyaoil contract traded 1.4% higher, while the palm oil contract also gained 1.4%. CBOT soyaoil prices fell 0.8%. Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.