Malaysian crude palm oil futures tumbled to a six-week low on Thursday, with a global commodities sell-off stretching from the previous day over concerns the European debt crisis was spiralling out of control. The global economic outlook has darkened after Italy was forced to pay a record borrowing cost on five-year bonds, reinforcing the view that the European summit last week failed to provide solutions to the two-year debt crisis.
Adding to the gloom was the shrinking in China's factory output again in December, strengthening expectations that waning global demand and tight credit conditions were starting to bite. The debt crisis and signs of ample edible oil supply will help drive palm oil to its first yearly decline since the 2008 financial crisis. It has lost 20 percent so far this year.
The decline in palm oil markets was more pronounced, thanks to a fall in Malaysian exports in the first half of December and a speculative mini-rally the day before, driven by concerns of monsoon rains disrupting harvests. "There was no reason for the market to go up yesterday, so it is giving back what shouldn't happened in the first place," said a trader with a commodities firm in Malaysia. At the close, benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange dropped 2.7 percent to 2,972 Malaysian ringgit ($930) after going as low as 2,971 ringgit.
Traded volumes for the February palm contract were at a three-week high at 16,017 lots of 25 tonnes each, compared with 13,556 lots on Wednesday. Cargo surveyor Intertek Testing Services reported a drop of 16.6 percent to 668,385 tonnes in December 1-15 Malaysian palm oil exports from the same period a month ago as top buyer India slowed purchases.
Rival cargo surveyor Societe Generale de Surveillance said exports of Malaysian palm oil products for December 1-15 fell 19.2 percent. But strong demand from China and Europe, as seen in ITS export data, suggests orders have not quite slowed and the trend is normalising from more than a two-year high of 1.68 million tonnes notched in October. The slowdown in exports may limit the declines in December end-stocks in Malaysia, the No 2 producer, where traders and planters expect heavy rains to limit harvesting and cut production 15 percent. China's most active September 2012 soybean oil contract dropped to a two-week low.