Palm snaps three-week winning streak as El Nino concerns weigh

KUALA LUMPUR: Malaysian palm oil futures tumbled more than 1% on Friday, as traders remained cautious about the potential impact of El Nino on future rainfall and output.

The benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange slid 72 ringgit, or 1.58%, to 4,479 ringgit ($1,104.56) a metric ton, the lowest closing price in more than two weeks since May 25.

The contract fell 1.65% this week, reversing course to snap three consecutive weeks of gain.

“There are subtle signs of recovery in exports compared to May, albeit in a cautious manner, however a sudden spike in production especially in the peninsula region has also been observed,” said Paramalingam Supramaniam, director at brokerage Pelindung Bestari.

Cargo surveyors estimated that exports of Malaysian palm oil products for June 1 to 10 rose between 3.5% and 4.9% from a month earlier.

“The market is expected to remain within a tight range as participants await further developments regarding the El Nino weather, which is widely anticipated to reduce rainfall and impact production,” Supramaniam added.

The El Nino weather pattern, which is expected to bring hot-dry weather across Asia from this month, could cause crop yields in Malaysia to fall by an average of between 8% and 10% this year, the country’s economic minister said.

Dalian’s most-active soyoil contract rose 0.04%, while its palm oil contract fell 0.48%. Soyoil prices on the Chicago Board of Trade were down 1.85%.

Palm oil tracks the price movements of rival edible oils, as it competes for a share of the global vegetable oils market.

Oil prices fell over 4% to their lowest in nearly two months after U.S. President Donald Trump cancelled new strikes on Iran, reducing fears of an escalation of hostilities following tit-for-tat attacks earlier in the week.

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

The ringgit, palm’s currency of trade, strengthened 0.22% against the dollar, making the commodity slightly more expensive for buyers holding foreign currencies.