Palm oil plunges on fears of China cancellations

Palm oil futures in Malaysia, the global benchmark for the commodity, plunged to the lowest in 15 months on speculation that Chinese buyers may have cancelled soybean and vegetable oil cargoes, and as other commodities fell.

Palm oil for October delivery, the most-actively traded contract on the Malaysia Derivatives Exchange, slumped by as much as 8.7 per cent to 2,392 ringgit ($715) a metric tonne, the lowest since May 9, 2007. The contract closed at 2,453 ringgit. The shares of palm oil companies also declined.

“Given the price’s big fall, I am not surprised if buyers default on forward contracts,’’ Kan Heen Sing, trader at HLG Futures, said from Kuala Lumpur. “The market was surprisingly weak, I guess partly because of this.’’

Traders in China, the world’s biggest oilseed consumer, have canceled orders for almost 150,000 tonnes of palm oil and some soybeans on weak domestic demand and plunging global commodity prices, an agricultural market researcher said.

In the past two weeks, some of the biggest dealers in China have declined to take delivery of palm oil shipments and sold back five cargoes of soybeans, said Gao Yingbin, an analyst at the China Cereals and Oils Business Net.

It is common for smaller buyers to ditch cargoes when prices drop, a process called “washout,’’ and it happened last month as well, Gao said. “Now it’s happening to some of the big traders, who are probably trying to recover their losses on the futures market.’’

Crude Oil
Vegetable oils traded on China’s Dalian Commodity Exchange dropped. Soybean oil fell 346 yuan, or 3.9 per cent, to close at 8,640 yuan ($1,257) a tonne, after earlier losing as much as 5 per cent, the daily limit. Palm oil fell 324 yuan, or 4.2 per cent, to close at 7,488 yuan a tonne.

Palm oil, used in food and biofuels, often tracks the performance of crude, which has slumped 23 per cent from a record $147.27 a barrel on July 11. Palm oil prices are likely to be “subdued,’’ Wilmar International, the world’s biggest palm oil trader, said yesterday when reporting earnings.

“The recent crude palm oil price correction is largely sentiment-driven, triggered by the crude oil price decline,’’ Fordyanto Widjaja, an analyst at Morgan Stanley Asia, wrote in a note today from Singapore on Wilmar’s earnings. Losses in palm oil futures in Malaysia were “compounded by technical selling once prices dropped below 2,500 ringgit a ton,’’ Kan at HLG said.