Palm oil below 'feel good' level

KUALA LUMPUR: PALM oil prices yesterday continued its two-month decline, dipping below the "feel good" psychological level of RM3,000 per tonne for the first time since December 2011.

The third-month palm oil futures on the Bursa Malaysia Derivatives Exchange yesterday closed RM53 lower at RM2,953 per tonne.

"The uncertain sentiment in the Eurozone and slowing of China economic growth is affecting all oil palm plantation counters," said a palm oil dealer with a brokerage.

Apart from gloomy macro-economic sentiments, big funds and speculators are seen to have prompted erratic price movements in the capital markets.

"The sudden plunge in palm oil prices is contributed by hedge funds short selling. Since the run-up in the prices at the beginning of the year, there is not much room for speculators to make money," she said in a telephone interview yesterday. "So, they bet on falling prices and the shorting triggered a stampede among traders to short cover," she added .

She estimated that in the weeks ahead, there would be more selling than buying of palm oil futures. "The US dollar is likely to strengthen further if there is no sign of immediate recovery from the eurozone," she said.

A stronger US dollar is believed to have also contributed to falling commodities prices, from energy to agricultural products. The dollar gained seven per cent over the last three months. Yesterday, it traded at RM3.20 against the ringgit.

"A stronger US dollar didn't just hammer energy prices, it also pounded all other commodities. In the last two months, crude oil has tumbled 25 per cent while palm oil fell by 18 per cent," said a senior plantation analyst with a securities firm in Kuala Lumpur.

He explained that a stronger dollar makes commodities like palm oil more expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the prices to come down. "Palm oil prices have dropped but not that drastic. Like other edible oil prices, it is likely to fall further if the US dollar becomes stronger," he said.

Asked if falling palm oil prices would dampen Felda Global Ventures Holdings Bhd (FGV) debut on the Main Market of Bursa Malaysia at the end of the month, the analyst replied, "I don't think so. FGV shares seems to be well-supported by government funds and cornerstone investors."

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