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Palm dives to near 7-week low on increased concerns over demand

Palm dives to near 7-week low on increased concerns over demandKUALA LUMPUR: Malaysian palm oil futures dived to their lowest in nearly seven weeks on Tuesday as worries over weak demand and doubts over Indonesia’s ambitious biodiesel mandate prompted investors to unwind long positions.

The benchmark June contract on the Bursa Malaysia Derivatives Exchange tumbled in late trade to close 2.6 percent down at 2,140 ringgit ($ 579) a tonne on Tuesday, their weakest level since Jan. 30.

Palm prices opened the week on a weak note after Malaysia, the No.2 producer after Indonesia, decided to end a duty-free export policy for the crude grade which sparked worries that buyers would switch to rival edible oils.

Poor export data from cargo surveyors for the first half of March also fuelled bearish sentiment for the world’s most traded vegetable oil, which is used in everything from soaps to chocolate and biodiesel.

“There’s long liquidation by those who bought before the Palm Oil Conference, on the biodiesel subsidy hike,” said a trader with a foreign commodities brokerage in Kuala Lumpur, adding that weak crude prices were also assisting the drop.

Palm has lost 11 percent after hitting a 2,400 ringgit top during a closely-watched industry conference early March.

Total traded volume stood at 50,804 lots of 25 tonnes, above the usual 35,000 lots.

Concerns over the success of Indonesia’s biodiesel mandate have dragged on palm values.

The country has said it may give tax breaks to support new biodiesel mandates, after earlier raising the minimum bio content in diesel fuel to 15 percent and ramping up biodiesel subsidies to protect its fledgling biofuel industry.

But some industry players are doubtful whether Indonesia can meet its targets as the country is faced not only with logistical and infrastructure problems, but also weak crude oil prices that make blending palm-biodiesel unprofitable.

“We are doubtful that Indonesia’s infrastructure is ready for country-wide distribution of biodiesel, which was a problem hindering the biodiesel programme last year,” RHB Research said in a note on Tuesday.

“Nevertheless, we suspect that where there is ready infrastructure, more volume will be pushed through.”

Brent crude fell below $ 54 a barrel in choppy trade on Tuesday, reversing gains earlier in the day as concerns over a growing supply glut weighed on the market.

Copyright Reuters, 2015

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