Palm oil prices fall as India's import tax worries counteract weak supply prospects

Malaysian palm futures closed lower on Wednesday, as fears over higher import taxes from India, the top buyer of vegetable oil in the world, outweighed the weaker outlook for supply from Indonesia, the top producer.

The benchmark contract for palm oil for November delivery at the Bursa Derivatives exchange fell 3 ringgit or 0.08% to 3,920 ringgit (US$903.23) per metric tonne, for a second session in a row.

Two government sources told reporters on Wednesday that India may raise import taxes on vegetable oil to protect farmers from falling prices of oilseeds.

The announcement is expected to take place in the next few weeks. This could reduce demand for palm oil and its exports.

The Indonesia Palm Oil Association reported that Indonesian palm oil exports in June rose 71.8% compared to May, reaching 3.385 millions metric tons. However, they fell 1.88% on an annual basis.

Data from Intertek Testing Services, a cargo surveyor, and AmSpec Agri Malaysia, an independent inspection company, showed that Malaysian palm oil exports between Aug.1-25 fell between 14.1% to 14.9% compared with the previous month. However, the export pace increased from Aug.1-20.

Mitesh Saiya is the trading manager of Mumbai-based trading company Kantilal Laxmichand & Co. He said that expectations of lower Indonesian Palm Oil production this year due to unsupportive climate and ageing trees are keeping market sentiment positive.

Saiya added that Indonesia's plans for a higher biodiesel mandate by 2025 will likely limit the export of palm oil, which in turn would support global palm prices.

Bisnis.com, a news website in Indonesia, reported that the trade ministry of Indonesia is considering adjusting its palm oil export taxes to increase the commodity's competitiveness amid a weakening global demand.

Dalian's soyoil contract with the highest volume increased by 0.58% while palm oil contracts fell 0.5%. Chicago Board of Trade soyoil prices rose by 0.25%.

As they compete to gain a market share on the global vegetable oil market, palm oil prices are affected by changes in other oils. $1 = 4.3400 Ringgit (Reporting and editing by Gabrielle Ng, Mrigank Dahniwala, Eileen Soreng).

(source: Reuters)