Palm oil price sinks to a 10-month low.

Palm oil fell to a 10-month low on Tuesday, knocked by a larger than expected decline in Malaysian exports and growing inventories.

Since plumbing a five-and-a-half-year low in 2015, the commodity used in everything from toothpaste to chocolate, has been supported by output falls due to dry weather stemming from the El Niño weather phenomenon.

However, forecasts of weaker demand for vegetable oils and a recovery in palm production for the largest producers, Indonesia and Malaysia, have weighed on prices.

Palm oil traded in Malaysia closed down 2.3 per cent at 2,188 ringgit a tonne. The benchmark hit a two-year high of 2,793 ringgit in late March, pushing other edible oils such as soyabean oil higher.

According to the Malaysian Palm Oil Board, exports fell 12 per cent to 1.13m tonnes in June while stocks rose 8 per cent to 1.77m tonnes, increasing for the first time since November.

“We are expecting stock levels to build in the coming months,” said analysts at Rabobank. Output in Indonesia, the largest producer of palm oil, is also forecast to recover.

Rising supply has come as demand from leading importers has slowed, with India and Bangladesh recording declines of 62 per cent and 38 per cent respectively in May from the previous month, said Rabobank.

China’s May vegetable oil imports tumbled 50 per cent from a month before to 200,000 tonnes, and stocks at ports as of the end of May were up 30 per cent at 600,000 tonnes, according to the bank.

Slowing demand comes as buyers have turned to soya oil as a cheaper alternative. India is the largest single market for palm oil, and “there has been a clear preference for soy oil imports as palm oil and soy oil prices converged”, said Capital Economics.

In China, the rising soyabean crush industry and the surge in soyabean imports for soya meal, a key feed for livestock, has led to plentiful supplies of soya oil. A weakening in China’s instant noodle market, which also drove demand for palm oil, has contributed to sluggish consumption.

EU’s anti-dumping tariffs on south-east Asian palm oil-based biodiesel exports are also weighing on palm oil prices, while negative publicity, highlighting the clearing of rainforests to plant palm was deterring use of the commodity in the food sector, said Capital Economics.

Source : ft.com