KUALA LUMPUR: Malaysian palm oil futures suffered their biggest fall in more than 21 months on Monday after Indonesia, the world’s top palm oil producer, announced measures to increase shipments.

The sharp drop in palm oil prices in late trading was in direct response to the announcement that Indonesia will help palm oil exporters by reducing its export levy to zero from $50 a tonne previously, traders said.

Until now the Indonesian levy had helped to make Malaysian palm oil more competitive. Its abolition could put Indonesian producers in a more advantageous situation because their costs are lower than their Malay counterparts, one Kuala Lumpur-based trader said.

At Monday’s close, the benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange was down 3.9 per cent at 1,965 ringgit ($469.42) a tonne. That was its biggest one-day dip since Feb 16 last year. Traded volumes stood at 53,531 lots of 25 tonnes each.

However, Malaysia’s announcement on Monday of revisions to its biodiesel content rules are likely be supportive for palm oil in the intermediate and long-term, a second Kuala Lumpur trader said. The so-called B10 biodiesel programme will raise the minimum bio-content that local producers must put in biodiesel to be used in transport to 10pc from 7pc at present, potentially boosting demand for palm oil as a feedstock.

Monday’s losses bring the Malaysian palm oil benchmark near to a three-year low of 1,949 ringgit, hit last week amid high inventories, rising production and sluggish demand.

Other traders said Monday’s declines were the culmination of multiple factors including weaker crude oil prices.

Published in Dawn, November 27th, 2018