02.11.2019 (The Star Online) - SINGAPORE: Malaysian palm oil futures tumbled on Friday, weighed by a stronger ringgit and as panic buying on supply shortage worries eased.
The benchmark palm oil contract for January delivery on the Bursa Malaysia Derivatives Exchange fell 0.9% to 2,462 ringgit ($591.26) per tonne, recording its biggest percentage drop since Oct. 14.
"The dip was mainly on a firmer ringgit and profit taking ahead of the weekend as the market buying was overdone," a Kuala Lumpur-based analyst told Reuters.
The contract nearly touched a 20-month high this week at 2,505 ringgit per tonne, its highest weekly price since March 2 last year.
Palm prices this week were supported by supply shortage fears brought by drier-than-usual conditions and a bullish consumption outlook from Malaysia and Indonesia's biofuel push, which limited losses, the trader said. Industry analyst
Dorab Mistry said earlier on Friday that Malaysian palm oil output in 2020 was expected to be lower than 2019, due to dry weather and fertiliser cuts.
Meanwhile, Haze due to forest fires in top palm oil producer Indonesia has likely affected the quality of palm fruits and production of the vegetable oil this year, a leading industry analyst James Fry said on Thursday.
Also weighing on palm oil prices were cheaper rival oils elsewhere: Dalian's January palm oil and soyoil contracts both fell 0.4% on Friday. However, U.S. soyoil futures on the Chicago Board of Trade was 0.2% higher.
Palm oil is affected by price movements in related oils as they compete for share in the global vegetable oils market
Benchmark palm oil prices are seen rising to 2,700 ringgit a tonne by March 2020, according to forecasts by industry analyst Dorab Mistry, higher than a previous forecast of 2,500 ringgit due to slower production.
Mistry said prices would also be supported as buyers would have little scope to switch to alternative oils, since production of soyoil and sunflower oil will only grow slightly on-year in 2020.
"The market is in a great hurry and has begun the job of rationing supplies by means of higher price," said Mistry, speaking at an industry event in Nusa Dua, Bali in Indonesia on Friday.
Palm prices rallied this week, hitting a near 20-month top on Thursday. It rose to 2,514 ringgit a tonne, its strongest since March 2018, and last traded at 2,485 ringgit on Thursday evening.
Mistry, director of Indian consumer goods company Godrej International Ltd, expects Malaysianpalm oil production in 2020 to slow from 2019, as dry weather and fertilizer cuts impact fruit yield.
"Low prices hurt small growers who cut fertiliser usage from August 2018 onwards. Dryness has become a significant factor," according to a copy of Mistry's presentation given at the event and seen by Reuters.
"September production was a disappointment. Malaysia appears to be peaking in October but even that peak is disappointing," he said, adding that a "new phase of under-performance has commenced."
He estimates Malaysian output in the first half of 2020 will slow by 1 million tonnes versus the corresponding period this year, while production will stagnate in the second half of 2020.
Mistry also said he was "not optimistic for palm oil production in Indonesia," with annual production for 2020 seen growing by only 1 million tonnes, also due to cuts in fertilizer application, dry weather and lower new areas of planting.
"We are already seeing signs of a feeble peak in production this year. 2020 will be worse. Peak production in Indonesia in October is just not like last year," said Mistry.
"From November we expect to see month on month declines. At present I am cautiously estimating higher 2019 crude palm oil production in Indonesia but by a mere 1 million tonnes."
Mistry maintained earlier forecasts that Malaysian and Indonesian output for 2019 would rise to 20.3 million tonnes and 43 million tonnes respectively.
Mistry also estimated that Malaysia would end the year with inventories of 2.5 million tonnes in December, versus 2.5 million tonnes in September.
Reuters also reported that Malaysia's exports likely fell in September for the second successive month due to a drop in palm oil shipments, but at a slower pace than in August, a Reuters poll showed on Friday.
The median forecast among 11 economists surveyed was for September's exports to decline 0.1% from a year earlier, slower than the 0.8% contraction seen in the previous month.
Imports in September however are expected to climb 1.1% year-on-year, recovering from a sharp 12.5% drop the month before, the poll showed.
Malaysia reports trade data in ringgit .
Malaysia's trade surplus likely widened to 14.4 billion ringgit ($3.46 billion) in September from August's 10.9 billion ringgit.
($1 = 4.1630 ringgit) - Reuters
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