Malaysian Palm Oil Futures Decline Over 2% Despite Weekly Gains

KUALA LUMPUR: Malaysian palm oil futures experienced a significant decline on Friday, closing over 2% lower. This drop marked the end of a seven-session rally, primarily influenced by a stronger ringgit. Despite this setback, the market managed to achieve a weekly gain, showcasing the volatility and resilience of palm oil prices.

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange fell by 100 ringgit, or 2.41%, concluding the day at 4,052 ringgit ($983.02) per metric ton. The decline in palm oil prices can be attributed to the strengthening of the ringgit, which may reduce demand in the short term. David Ng, a trader at Iceberg X Sdn Bhd, a Kuala Lumpur-based trading firm, noted that traders are also closing out their positions and booking profits following the recent price rally, which has further pressured Malaysian palm oil futures.

However, it is important to highlight that the rebound in Chicago soybean prices is providing some support to the palm market, preventing it from falling even lower. The ringgit, which is the currency used for palm oil trade, strengthened by 0.43% against the U.S. dollar. This increase makes palm oil more expensive for buyers who hold foreign currencies, potentially impacting demand.

In related markets, Dalian’s most-active soyoil contract rose by 0.22%, while its palm oil contract added 1.27%. Conversely, soyoil on the Chicago Board of Trade fell by 0.84%. The palm oil market closely tracks the prices of rival edible oils, as they compete for a share of the global vegetable oils market.

On the oil front, prices remained stable on Friday but are still on track for a weekly decline. Investors are weighing expectations for increased output from Libya and the broader OPEC+ group against fresh stimulus from China, the top importer. Weaker crude oil prices can make palm oil a less attractive option for biodiesel feedstock, further complicating the market dynamics.

While the recent drop in Malaysian palm oil futures may raise concerns among traders and investors, the overall market remains resilient. The interplay between currency fluctuations, global oil prices, and competing edible oils will continue to shape the future of palm oil. As the market evolves, stakeholders must stay informed and adapt to these changes to navigate the complexities of the palm oil industry effectively.