Malaysian palm oil futures dropped on Friday as news of India's import tax hike on crude and refined vegetable oils dampened market sentiment. The benchmark December palm oil contract on the Bursa Malaysia Derivatives Exchange was down 1.1 percent at the end of the trading day, closing at 2,104 ringgit ($500.24) a tonne. It had earlier reached an intraday low of 2,095 ringgit, its lowest in more than a week. Traded volume stood at 54,976 lots of 25 tonnes each, well above the average 35,000 lots usually traded in a day.
"The 5 percent tax increase by the Indian government is a major factor which made prices lower," said a trader with a local commodities brokerage in Kuala Lumpur, explaining that the higher import taxes would mean more expensive Malaysian palm. "As India imported quite heavily in the last three to four months, the rise in imports will slow down. The market downtrend will continue and test the 2,030 ringgit level," he said.
India raised its import tax on crude vegetable oils to 12.5 percent from 7.5 percent, government and trade sources said ahead of an announcement expected later on Friday. Palm oil still maintains a bearish target at 2,068 ringgit per tonne as the support at 2,132 ringgit does not seem to hold, according to Reuters market analyst for commodities and energy technicals Wang Tao. In competing vegetable oil markets, the most active January soybean oil contract on the Dalian Commodity Exchange lost 0.5 percent while the US December soyoil contract fell 0.8 percent.