Demand Destruction Fears Send Palm Oil to Worst Week in 11 Years

Bookmark

(Bloomberg) -- Palm oil posted its steepest weekly drop since the global financial crisis as some of the biggest producers of the commodity warned of worse to come in the hit to demand from the coronavirus.

Sime Darby Plantation Bhd. said demand from China has virtually “dried up,” while Golden Agri-Resources Ltd. said sales to the virus-hit country could slide by up to 20% due to weaker demand in the food sector.

Demand Destruction Fears Send Palm Oil to Worst Week in 11 Years

Palm oil futures plummeted more than 11% this week, the worst drop since October 2008. The decline pushed the benchmark further into a bear market, falling about 24% this year and cutting in half the gains it made in the fourth quarter.

“The overall sentiment is bearish,” said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based broker and consultant. Energy prices are dropping on demand destruction due to the coronavirus and that’s why vegetable oil prices are declining to adjust themselves to remain competitive as a biofuel feedstock, he said.

Palm oil has also been under pressure due to weaker exports from Malaysia, the world’s second-biggest producer, and expectations for output to gain further. The slump seen by the world’s most-consumed edible oil was in line with other commodities, which were punished in an across-the-board sell-off before the weekend.

Drivers
Prices
  • Palm oil for May -5.7% to close at 2,319 ringgit per ton, the lowest level for most-active contract since October
    • -11.6% so far this week, the worst week since October 2008; -10.9% this month
  • Soybean oil for May in Chicago -1.8% to 28.63c/lb
  • Palm oil for July -5.6% to $578.50/ton on Asia Pacific Exchange
  • Soybean oil’s premium to palm ~$81/ton, vs avg premium of ~$95 in past year: data compiled by Bloomberg
  • Palm’s premium over gasoil ~$110/ton, vs avg discount of ~$22 in past year: Bloomberg data
  • Refined palm oil for May -4.7% to close at 4,948 yuan/ton on Dalian Commodity Exchange; Dalian soyoil -4% to 5,566 yuan/ton

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.