Palm oil futures plunge

Malaysian palm oil futures plunged 7.5% on 21 April to their lowest level since last August in a reaction to US crude oil futures trading negatively the day before, AgriCensus reported.

With global demand for both vegetable and mineral oils dropping, this was the first time in its history that US crude oil had fallen below zero.

The benchmark July crude palm oil futures contract (FCPO) on Bursa Malaysia had fallen to MYR2,604/tonne (US$469.84/tonne) by close on 21 April – its biggest daily loss since mid-January and down 34% since the start of 2020.

It came as West Texas Intermediate (WTI) futures for May delivery settled at minus US$37.63/barrel on 20 April, as traders struggled to store the glut of oil caused by COVID-19 lockdown measures hitting fuel use and demand.

“Palm oil was relying on palm-based biodiesel blends to absorb the increasing production in Indonesia and Malaysia, but a steep decline in energy prices resulted in a highly unfavourable spread over gas oil; extremely low gas oil prices together with curbed transport has put the biodiesel use under question,” Anilkumar Bagani, research head at Mumbai-based vegetable oil broker Sunvin Group, told AgriCensus.

A Swiss-based palm oil broker agreed and was quoted by AgriCensus as saying: “Crude oil is pulling palm oil futures down – the biodiesel guys have no reason to buy it.”

At the same time, vegetable oil futures in China plunged, with soyabean and palm oil futures on the Dalian Commodity Exchange shedding 1-5% across the board.

The most liquid soya oil contract fell 3.16% on 21 April to a one-month low at CNY5,340/tonne (US$754.24/tonne) while the most active palm oil contract fell more than 4.5% to reach its lowest level since August 2020 at CNY4, 510/tonne (US$637/tonne).

Rapeseed oil futures on the Zhengzhou Commodity Exchange also slumped 1-3% across the board, AgriCensus reported, with the most liquid contract falling 2.39% to CNY6,708/tonne (US$947.46/tonne) by market close on 21 April.

In the USA, soyabean oil futures on the Chicago Board of Trade for July delivery had been trading 2.9% lower at US$564.61/tonne, its lowest since 23 March.

Crude oil futures had remained under pressure with a 13.8% fall in the Brent benchmark to US$21.78/barrel, AgriCensus reported, while the June WTI contract had fallen 18% to US$20.43/barrel.

AgriCensus reported Vivek Pathak, a Mumbai-based oils broker, as saying to clients in a note: “The impact of WTI trading negative will be widespread.” Pathak had added that the pressure on vegetable oil markets could continue.

Meanwhile, demand for vegetable oils globally was falling as restaurants, bars and hotels had remained closed throughout the world, while life in China – which had ended its lockdown in March – was only gradually returning to normal.

Indonesia’s Palm Oil Association (GAPKI) had said on 21 April that exports were down nearly 12% on the year to 2.54M tonnes for the month of February – the time when China had been under lockdown.