Palm oil heads for worst week in 11 years on demand destruction

Prices have plummeted more than 12% so far this week, the worst drop since October 2008, as tumbling crude oil prices lowered the tropical oil’s attractiveness as a biofuel.

NEW DELHI: The sell-off in palm oil deepened, with futures heading for their worst week in 11 years on slumping petroleum prices, weaker exports and concern about the rapid spread of the coronavirus.

Prices have plummeted more than 12% so far this week, the worst drop since October 2008, as tumbling crude oil prices lowered the tropical oil’s attractiveness as a biofuel. Weaker exports from Malaysia, the world’s second-biggest producer, and expectations for output to gain further soured sentiment. The most-consumed edible oil has slipped 27% from its January peak to trade in a bear market.

"The overall sentiment is bearish, ” said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based broker and consultant. There are expectations of a strong recovery in palm oil production in Malaysia, he said, adding that vegetable oil demand was unlikely to improve any time soon.

"Falling energy prices could further push palm oil prices lower by another 2%-3% in the near term, ” Bagani said.

The palm oil market has been under pressure due to political uncertainty in Malaysia and on worries that the spread of the coronavirus will curb demand. Global deaths due to the virus have totaled 2,858, while confirmed cases worldwide have surpassed 83,000.

Golden Agri-Resources Ltd., one of the world’s biggest palm oil producers, said the coronavirus outbreak may cut its palm oil sales to China by up to 20% due to weaker demand in the food sector. - Bloomberg