Palm oil futures plunge to near 9-mth low as crude oil trades negative

21 Apr 2020 | Rei Geyssens, Johnny Huang

Malaysian palm oil futures plunged 7.5% on Tuesday to its lowest level since last August in a reaction to US crude oil futures trading negative for the first time in history the day before, as global demand for both vegetable and mineral oils tumbles.

The benchmark July contract on the Bursa Malaysia fell to MYR2,604/mt ($469.84/mt) by Tuesday’s close – recording its biggest daily loss since mid-January and is now down 34% since the start of the year.

It came as WTI futures for May delivery settled at minus $37.63/bbl on Monday as traders struggled to store the glut of oil caused by plunging demand as the world’s largest economies remain under lockdown to halt the spread of the Covid-19 coronavirus.

“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 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 vegoil broker Sunvin Group, told Agricensus.

A Swiss-based palm oil broker echoed the view saying: “Crude oil is pulling palm oil futures down – the biodiesel guys have no reason to buy it.”

Vegetable oil futures in China plunged in tandem with the Malaysian market with soyoil futures and palm oil futures on Dalian Commodity Exchange shedding 1-5% across the board.

The most liquid soyoil contract fell 3.16% on the day to its one month low at CNY5,340/mt ($754.24/mt) while the most active palm oil contract tanked more than 4.5% to reach a lowest level since August last year at CNY4,510/mt ($637/mt).

Rapeseed oil futures on the Zhengzhou Commodity Exchange also slumped 1-3% across the curve with the most liquid contract sliding 2.39% to 6,708/mt ($947.46/mt) by Tuesday’s market close.

“It was caused by crude oil. And look at palm oil on BMD as well,” one China-based futures trader said.

Over in the US, soyoil futures on the Chicago Board or Trade for July delivery were trading 2.9% lower at 25.61 ct/lb ($564.61/mt) by the time of press – its lowest since March 23.

Crude oil futures remained under pressure on Tuesday with the Brent benchmark falling 13.8% by the time of press to $21.78/bbl – prices not seen in at least 20 years – while the June WTI contract was down 18% to $20.43/bbl.

“Have we seen it all? … No is the answer. The impact of WTI trading negative will be widespread,” said Vivek Pathak, a Mumbai-based oils broker, in a note to clients on Tuesday, adding that the pressure on vegoil markets could continue.

At the same time, demand for vegetable oils globally is falling as restaurants, bars and hotels remain closed in major global consumers, while life in China – which ended its lockdown last month – is only gradually returning to normal.

Indonesia's Palm Oil Association (GAPKI) said on Tuesday that exports from the world’s largest grower and exporter were down nearly 12% on the year to 2.54 million mt for the month of February – when China was under lockdown.