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BMD Crude Palm Oil Futures Fall Sharply On Oil Weakness
2006-09-20 18:47:00
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KUALA LUMPUR (Dow Jones)--Crude palm oil futures on the Bursa Malaysia Derivatives ended sharply lower Wednesday, as falling crude oil prices raised doubts about biodiesel demand.
Traders said recent steep declines in crude oil compounded prevailing bearishness in the market this month after data showed Malaysia's stockpile surged to a record high in August.
The benchmark December contract ended at the day's low of MYR1,528 a metric ton, down MYR34 from Tuesday.
The market opened lower and remained in negative territory throughout the day.
"Sentiment was already hit last week by the stocks figures (reported by the Malaysian Palm Oil Board). Now, crude oil is adding on to the bearish mood," a trader in Malaysia said.
Weak technical charts, following the breach of the week's low of MYR1,543/ton, exacerbated selling pressure, traders said.
Crude oil fell sharply overnight, with the October Nymex contract tumbling more than $2 to $61.66 a barrel.
The weakness in oil prices has calledotniquestion palm oil's competitiveness as a fuel source.
At current CPO prices, palm oil-derived biodiesel appears a tad more expensive than regular diesel, traders said.
CPO is currently around $415/ton, but it costs about another $120 to convert CPOotnibiodiesel. Regular diesel meanwhile would cost around $520-$525/ton at current crude oil prices, traders said.
Export estimates for the Sept. 1-20 period issued by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. Wednesday had little impact on the market as the figures were largely within expectations.
Intertek pegged exports at 856,999 tons, unchanged from the same period in August.
SGS, which is more closely followed, estimated exports at 804,277 tons, down 7.6% on month.
Traders said the pace of exports so far in September may not be enough to prevent a further build-up in stocks by the end of the month.
Malaysian palm oil stocks reached an all time high of 1.68 million tons at end-August.
Production, which touched 1.54 million tons in August, is expected to rise further as September is usually the most productive month of the year.
Traders said the performance of crude oil prices later Wednesday would have a significant bearing on the direction of CPO futures Thursday.
A drop in crude oil prices to below $60/ton could deal a psychological blow to the palm oil market, they said.
"The $60 level has been widely talked about in the industry as an important level for biodiesel to be viable," a trader in Malaysia said.
Trading volume totaled 14,775 lots, compared with 9,114 lots Tuesday.
Open interest in CPO futures totaled 68,462 lots, compared with 68,811 lots the previous day. One lot is equal to 25 tons.
In the Malaysian cash market, palm oil products were lower in tandem with declines in CPO futures.
October RBD palm olein was last offered $5 lower at $450.00/ton. November/December also fell $5 to $455.00/ton, while January/February/March was down $2.50 at $460.00/ton.
October CPO, locally delivered, was last offered at MYR1,525/ton, down MYR25 from Tuesday.
(Closing BMD CPO futures prices in MYR/ton at 1010 GMT)
Month Close Previous Change High Low
Oct 06 1,515 1,545 Dn 30 1,537 1,515
Nov 06 1,521 1,552 Dn 31 1,547 1,520
Dec 06 1,528 1,562 Dn 34 1,556 1,528
Jan 07 1,539 1,574 Dn 35 1,565 1,539
Feb 07 1,545 1,582 Dn 37 1,560 1,545
Mar 07 1,555 1,590 Dn 35 1,565 1,555
May 07 1,560 1,599 Dn 39 1,575 1,560
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