Published: 2008/08/13 |
The plunge in palm oil futures prices is directly linked to falling soyabean prices, says Cargill Asia Pacific regional director
Investors are selling their stocks because they worry that future earnings would fall due to lower palm oil prices. The slide has taken its toll on the broader market as plantation stocks make up about one fifth of the Kuala Lumpur Composite Index (KLCI). Since April, the KLCI has lost some 200 points or 15 per cent.
"The plunge in FCPO (palm oil futures) prices is directly linked to falling soyabean prices," said Cargill Asia Pacific regional director Paul Conway.
At the Chicago Board of Trade, soyabean has lost 29 per cent in value since its historic high of US$16.63 (RM55.37) per bushel notched on July 3.
The prices of palm oil and soyabeans tend to move together because they are near-perfect substitutes. They are commonly used to make cooking oil, margarine, detergent and cosmetics.
Conway attributed the recent plunge in FCPO prices to oversupply and too little demand for palm oil.
"The oil palm trees in Indonesia and Malaysia are producing more than usual and the increasing supply is building up stock levels," he told Business Times in a recent interview. Cargill owns and manages some 100,000ha of oil palm plantations in Indonesia.
A stronger US dollar has also made it worse. The dollar has gained 6.3 per cent over the last four months.
"A stronger US dollar didn't just hammer crude oil, it also pounded all other commodities. Lately, crude oil has fallen by 23 per cent but palm oil plunged 43 per cent," said a palm oil dealer with a futures broker in Kuala Lumpur.
He explained that a stronger dollar makes commodities like palm oil expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the price to come down.
"It is a double whammy!" the dealer said.
He estimated that in the days ahead, there would be more selling than buying of FCPO because good weather conditions in America will boost supply of soyabeans.
"Soyabean prices are expected to slide further. Since palm oil moves in lockstep with soyabean, you can expect the same," he said.
But there are also those who blame big funds for erratic price movements.
"The sudden plunge in FCPO is very much contributed by short selling. Since the run-up in the prices, there is not much room for speculators to make money. So, they bet on falling prices and the shorting triggered a stampede among all of us to short cover," said a trader with a specialty fats producer.
They disagreed that the decline should be directly linked to the drop in crude oil prices, widely blamed for sparking a sell-down in commodity prices globally.
The price of palm oil traded in the futures market has been falling due to an oversupply of vegetable oils worldwide.
Yesterday, the third month benchmark palm oil futures closed at RM2,561 per tonne, 43 per cent off from its record high of RM4,486 per tonne in March.
Investors are selling their stocks because they worry that future earnings would fall due to lower palm oil prices. The slide has taken its toll on the broader market as plantation stocks make up about one fifth of the Kuala Lumpur Composite Index (KLCI). Since April, the KLCI has lost some 200 points or 15 per cent.
"The plunge in FCPO (palm oil futures) prices is directly linked to falling soyabean prices," said Cargill Asia Pacific regional director Paul Conway.
At the Chicago Board of Trade, soyabean has lost 29 per cent in value since its historic high of US$16.63 (RM55.37) per bushel notched on July 3.
The prices of palm oil and soyabeans tend to move together because they are near-perfect substitutes. They are commonly used to make cooking oil, margarine, detergent and cosmetics.
Conway attributed the recent plunge in FCPO prices to oversupply and too little demand for palm oil.
"The oil palm trees in Indonesia and Malaysia are producing more than usual and the increasing supply is building up stock levels," he told Business Times in a recent interview. Cargill owns and manages some 100,000ha of oil palm plantations in Indonesia.
A stronger US dollar has also made it worse. The dollar has gained 6.3 per cent over the last four months.
"A stronger US dollar didn't just hammer crude oil, it also pounded all other commodities. Lately, crude oil has fallen by 23 per cent but palm oil plunged 43 per cent," said a palm oil dealer with a futures broker in Kuala Lumpur.
He explained that a stronger dollar makes commodities like palm oil expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the price to come down.
"It is a double whammy!" the dealer said.
He estimated that in the days ahead, there would be more selling than buying of FCPO because good weather conditions in America will boost supply of soyabeans.
"Soyabean prices are expected to slide further. Since palm oil moves in lockstep with soyabean, you can expect the same," he said.
But there are also those who blame big funds for erratic price movements.
"The sudden plunge in FCPO is very much contributed by short selling. Since the run-up in the prices, there is not much room for speculators to make money. So, they bet on falling prices and the shorting triggered a stampede among all of us to short cover," said a trader with a specialty fats producer.
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