KUALA LUMPUR: Malaysian palm oil futures slumped as much as 2.8% on Wednesday, hitting a one-week low, amid anticipation of an increase in production and bleak demand outlook.
The benchmark palm oil contract for November delivery on the Bursa Malaysia Derivatives Exchange slid 77 ringgit, or 1.75%, to 4,331 ringgit ($1,023.27) a tonne by the midday break, after rallying to a record high last week.
The correction in prices was likely induced by expectations demand will fall by about 15% over August 1-20, said Marcello Cultrera, institutional sales manager and broker at Phillip Futures in Kuala Lumpur.
Palm falls on August export plunge, profit-taking
"Also, the Indian demand for August is fully covered while subscriptions for September-October have reached a standstill at current prices," he added.
Export shipments during the first half of August had plunged between 15% and 24% from the previous month, cargo surveyors data showed on Monday.
Indonesia, the world's largest palm exporter, had enjoyed greater demand than Malaysia over July and August, partly due to lower export taxes and higher discounts for its crude and refined palm oil.
Cultrera said things will change in September as Indonesia is expected to raise its export duties for September to $166 from $93 in August.
Top buyer India is also expected to raise their import tax structure for crude and refined palm oil from end-September as subscriptions for the Diwali festival are finalised, Cultrera added.
Malaysia kept its September export tax for crude palm oil at 8%, but raised its reference price to 4,255.52 ringgit ($1,006.51) per tonne. The market is also hopeful for a rise in Malaysia's palm oil production amid the seasonal peak production season.
The Southern Peninsula Palm Oil Millers' Association earlier this week forecast a 10.6% rise in August 1-15 production, according to traders.
Dalian's most-active soyoil contract fell 2%, while its palm oil contract eased 3.8%. Soyoil prices on the Chicago Board of Trade were down 0.5%.
Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.