Malaysian CPO futures plunged for the first day in 4 after crude oil slumped late last week, reducing prospects for biofuel demand made from the commodity and rival soybean oil. Palm oil for Nov delivery fell as much as 5.2% to 2,575 ringgit (US$763) a tonne and closed at 2,600 ringgit in Kuala Lumpur.
"Crude's down by US$6 a barrel," Ben Santoso, an analyst at DBSVickers, said. "The sentiment was too overwhelming."
The price must decline to 2,200 ringgit in the next few weeks for demand to rebound, Dorab Mistry, director at Godrej International Ltd., one of India's biggest buyer of the commodity, said at a conference in Kuala Lumpur today.
The vegetable oil has slumped 42% from a record 4,486 ringgit on Mar 4 as supplies from Malaysia and Indonesia outpaced demand for food, and as a decline in crude oil from its record reduced its attraction as a bio-fuel.
"We have at present a deadly cocktail of rising production combined with some demand rationing," Mistry said. "Prices have to go to the level where they create strong demand growth."
Mistry, who has traded vegetable oils since 1976, said he abandoned his forecast for palm oil reaching 4,500 ringgit by Feb next year as it was "over-optimistic."
Malaysia's palm oil exports rose 0.8% in the first 25 days of Aug, compared with the same period the previous month, according to independent surveyor Intertek. A total of 1.14 m tons were tracked from Aug 1 to Aug. 25, Intertek said today. Malaysia exported 1.13 m tons in the same period in July, the surveyor said.
Production may drop by Nov-Dec, Santoso said.
"The stocks-to-usage ratio for palm oil should come down to Dec '07 level," he said. "That should be supportive to the price by then."
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