KUALA LUMPUR: Malaysian palm oil futures fell sharply on Monday as buyers hedged against the risk of rising Mideast tensions disrupting export shipments and as higher margin requirements kicked in on the Bursa Malaysia Derivatives Exchange (BMD).

The benchmark palm oil contract for March delivery on the BMD closed down 72 ringgit, or 2.3 per cent at 3,044 ringgit ($742.08).

Over two straight sessions of losses the contract has pared last week’s 1.4pc gain, which saw it hit 3,149 ringgit on Friday — the highest since January 2017. Tension between the US and Iran has weighed on equity markets and some commodity markets, while oil prices hit $70 a barrel on Monday.

“If a war breaks out between the United States and Iran, palm oil shipment routes could be disrupted and freight charges may go up,” said Paramalingam Supramaniam, a director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.

Meanwhile, the BMD increased margin rates for the palm oil futures contract from 4,000 to 4,500 ringgit, and the market was clearing positions due to the higher requirement, said a KL-based trader, adding that Chinese funds were also closing their books ahead of Chinese New Year.

Losses were limited by forecasts of lower stockpiles and production in December. Malaysia’s palm oil stockpiles likely fell 8.5pc from November to 2.06 million tonnes, the lowest in 27 months, a Reuters survey showed on Sunday.

Dalian’s most-active soyoil contract traded 0.8pc higher, while its palm oil contract edged down 0.7pc. Soyoil prices on the Chicago Board of Trade traded down 0.9pc. Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.

Published in Dawn, January 7th, 2020