The Hindu Business Line : Low demand may soften crude palm oil price

Outlook
Benchmark third month prices are expected to consolidate between 2,563-2,450 MYR a tonne.
But crude oil pries could make a difference in the medium term.

Our Bureau

Chennai, Aug. 8 Crude palm oil prices could be under pressure in the medium term due to lower demand but the price movement could depend on how the crude oil market behaves, according to analysts.

According to Mr Amol Tilak, research analyst at Kotak Commodities Services Ltd, in the short-term the prices for the benchmark third month are expected to consolidate between 2,563 and 2,450 Malaysian ringgit (MYR) a tonne. Festive demand from India would also keep prices supported.

On Wednesday, October crude palm oil contracts closed at 2,500 MYR ($724/Rs 29,170) a tonne. This is a far cry from the record 2,764 MYR ($800/Rs 32,250) it touched for the third month contract on June 7.

But a new dimension has been added to the current decline in the crude palm oil prices with fingers being pointed at the woes on the Wall Street, particularly the trouble of the US investment bank Bear Stearns.

On June 8, the open interest in Bursa Malaysia or MDEX hit a record 1,01,536. As crude palm oil prices touched a record high, some of the fund managers began to unwind their positions.

By the end of the month (June 29), the open interest had slid to 59,590. The prices, too, had slid sharply to 2,513 MYR a tonne ($727/Rs 29,250).

Since then, the open positions have recovered and as on August 7, it was 69,624.

Interesting aspect

Again, an interesting aspect of the trend is that on June 8 the open interest for the near-month July was 38,099, while for August and September it was 35,662 and 16,684, respectively.

On June 29, the open interest was 2,913, 20,516 and 22,061 respectively for July, August and September.

On August 7, the open interest for August was 466, while it was 25,769 for September and 22,105 for October.

“The sharp fall in the open interest within June itself shows that funds have sold heavily. Maybe, some have also gone short,” said an observer.

Other reasons for the fall in edible oil prices are fear of supply exceeding demand, especially with Malaysian palm oil stocks building up, decline in crude oil prices and concerns that bio-fuel demand growth may falter.

Developing trend

Pointing out the developing trend, market players and analysts feel there may not be much scope for further rise in edible oil prices, in particular palm oil and soyabean oil.

Besides fund players opting out of the edible oil counters, the upcoming kharif oilseed market is also weighing in the mind of international players.

“Imports could be down drastically after October when arrivals of kharif oilseeds peak,” an analyst said.

“But crude oil pries could make a difference in the medium term. Any break below 2,450 MYR could take palm oil to 2,300 MYR and any break above 2,563 MYR could take palm oil to 2,700 MYR,” said Mr Tilak.

According to the Mumbai-based Angel Commodities, refined soyabean oil prices could move sidewards. This is mainly in view of higher coverage of soyabean crop this year.

According to the Soyabean Processors Association of India, coverage could top a record 84 lakh hectares.

Mr Tilak said higher prices for cooking oils in the global market have led to a firm trend in domestic markets, thereby creating larger demand for domestic oilseeds. This has led to farmers opting for higher oilseeds sowing this year.

On Wednesday, RBD palmolein was quoted at Rs 450 for 10 kg in the domestic market, while crude soyabean oil ruled at Rs 448. This is against Rs 460 and Rs 464, respectively, on July 24, when the Centre cut the import duty on cooking oils by 10 percentage points to smother the effect of higher global prices.