KUALA LUMPUR (Jan 17): Malaysian palm futures fell 1.5% on Friday and recorded their worst weekly decline in more than 11 years, dragged down by India's import restrictions on the refined product and an export tax hike.
The benchmark palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange closed down RM43, or 1.5%, at RM2,843 (US$701.63), its lowest in a month. The week's decline of 9.2% is the biggest since October 2008.
"Prices plunged after India imposed restrictions on refined palm oils," said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.
India, the world's largest buyer of edible oils, last week restricted imports of refined palm oil and informally instructed traders to avoid purchases from Malaysia following a row over criticisms by Malaysia's prime minister over India's new citizenship law and actions in Kashmir.
India's imports of palm oil could fall as much as 11% in 2019/20, hit by a rally in prices and as the diplomatic row turn Indian traders away from Malaysia, Indian industry officials said on Friday.
The world's second-largest exporter of palm oil raised its export tax for crude palm oil to 6% for February, the Malaysian Palm Oil Board said on Friday.
The market is also wrestling with a drop in production, with refineries running at half their capacity as mills are not supplying enough crude palm oil for processing, Paramalingam said.
"Despite the sell-off, the market is also cognizant about end-stocks," he added.
Higher demand for biodiesel from top suppliers Malaysia and Indonesia and tightness in supply are supporting prices. Lower production is expected for the first half of the year as dry weather and lower fertiliser usage in early 2019 curbed yields.
Benchmark palm oil prices will not rise above RM3,300 per tonne in the first half of 2020 and their recent rally has eliminated competitive edge over rival edible oils, industry analyst James Fry said.
Dalian's most-active soyoil contract fell 0.5%, while its palm oil contract also slid 0.1%. Soyoil prices on the Chicago Board of Trade also dropped 0.5%.
Palm oil is affected by price movements in related oils as it competes for a share in the global vegetable oils market.
(US$1 = RM4.0520)