Malaysian palm oil futures retreated from 20-month highs on Monday, as traders took profits and as crude oil and rival soybean oil dropped, while weak export demand signals also failed to boost sentiment.
Ending a five-session rally, the Bursa Malaysia Derivatives' September crude palm oil contract fell 1.42% to 4,723 Malaysian ringgit ($1,168.77) per metric ton. The October contract dipped 1.32% to 4,869 ringgit/mt.
Cargo surveyors reportedly estimated Malaysian shipments for the period Aug. 1-20 to have declined 5.5% to 13.2% from a month earlier.
A firmer local currency has dampened export competitiveness, as it makes exports more expensive for foreign buyers. Malaysian ringgit has so far strengthened against the US dollar by more than 1% this month.
In top buyer India, festive-driven demand could drive palm oil purchases, but expectations of higher soybean imports in August could cap volumes. India's soybean oil purchases are reportedly expected to reach 620,000 metric tons this month, up 46% from the current marketing year's monthly average.
In Indonesia, buyers are reportedly scaling up purchases ahead of B50's full implementation in October, following a three-month transition period. The expanded biofuel policy could reduce exportable supplies as domestic consumption increases.
Meanwhile, the country's palm oil export levy hike to 12.5% from 10% and higher commodity prices could increase this year's collection by about 31% over 2025 levels, according to the coordinating ministry of economic affairs, as cited by Reuters.
The government's plan to establish a new trade exchange for products, including palm oil, coal, and nickel, can boost the top producer's control over prices. This market power is currently led by Malaysia.
In terms of supply and demand fundamentals, analyst expect the balance to tighten going forward, largely due to the El Nino weather phenomenon. There is a more than 90% probability for the phenomenon to develop into a very strong category in Q4, Malaysian Meteorological Department reportedly said.
Prices for the remainder of the year are projected to remain firm and range from 4,600 ringgit/mt to 5,000 ringgit/mt, Oils & Fats International reported, citing SD Guthrie global trading chief executive Sandeep Bhan.