Malaysian crude palm oil extended losses on Friday on the back of a stronger ringgit currency squeezing refiner margins at a time when export trends point to slowing demand. The ringgit has strengthened around 4.6 percent against the dollar in 2012, making it more expensive for refiners to buy ringgit-priced feedstock to process. Many investors also chose to remain on the sidelines ahead of a long weekend holiday, limiting trade interest in the futures market that has lost almost 4 percent this year.
"The market's a bit quiet, it's stuck in a tight trading range of 50 to 70 ringgit," said a trader with a foreign commodities brokerage in Kuala Lumpur. By the midday break, benchmark April palm oil futures on the Bursa Malaysia Derivatives Exchange edged down 0.1 percent to 3,052 ringgit ($1,010) per tonne. Traded volumes stood at 10,187 lots of 25 tonnes each, thinner than the usual 12,500 lots, ahead of the long weekend holiday. On the demand side, Malaysian palm oil exports for January eased close to 12 percent and 13 percent, according to cargo surveyors Intertek Testing Services and Societe Generale de Surveillance.
The decline was in line with market's expectation as top buyers including China, India and the European Union cut back orders. But traders also attributed the fall to the shift in orders to Indonesia, which slashed export taxes for processed oils. In response to the tax structure, Malaysia will reform its crude palm oil export duty policy and introduce a 1 billion ringgit fund, a Malaysian daily reported on Friday, citing unidentified sources.
Some traders see prospects of weaker demand for Malaysian palm oil as Brazilian harvest will start soon and major consumers will start looking at these offers. "The market will be competitive and we need not only to fight the Indonesia products but also beans from South American origin," said another trader based in Malaysia. Indonesia, meanwhile, is expected to export more crude palm oil to Pakistan as a result of a cut in import duties imposed by Islamabad following a trade pact signed on Friday, the Pakistani ambassador said. (Reuters SINGAPORE, Feb 3-Chew Yee Kiat)