Malaysian palm oil futures eased on Monday on the back of a stronger ringgit and hopes of a rise in production, but tighter supplies and higher biodiesel mandates in Indonesia and Malaysia supported prices.
The benchmark palm oil contract FCPOc3 for March delivery on the Bursa Malaysia Derivatives Exchange slid 21 ringgit, or 0.7%, to 3,113 ringgit ($766.18) during the midday break.
Palm oil had gained in the last two sessions, touching an intraday high of 3,150 ringgit on Friday, the highest in three years.
Palm oil prices came under pressure after Jan. 1-10 production estimates by the South Peninsular Palm Oil Millers Association showed a 1.47% decline, compared with an estimated 28.8% fall for Jan. 1-5, said Marcello Cultrera, institutional sales manager at Phillip Futures in Kuala Lumpur.
"The assessment on the January production, and Chinese New Year and Ramadan demand is still key on the price direction," Marcello said.
Stronger ringgit lifts export cost
A stronger ringgit, palm’s currency of trade, makes the edible oil more expensive for holders of foreign currency. The ringgit was up 0.3% against the dollar.
Malaysian end-December stockpiles fell to a 27-month low of 2.01 million tonnes, down 11% from the previous month, while production fell 13.3%, industry regulator Malaysian Palm Oil Board said on Friday.
Palm oil exports are seen improving for Jan. 1-10, rising between 21.6% and 29.8% from the month before, according to cargo surveyors.
Meanwhile, higher palm biodiesel mandates in top producers Indonesia and Malaysia are gaining traction. Indonesia is targeting to produce 10 million kilolitres of its B30 biodiesel this year, its Energy and Mineral Resources data showed on Thursday.
Biodiesel demand increases
Malaysia has started to roll out its B20 biodiesel programme and said it would absorb an additional 500,000 tonnes of crude palm oil.
Palm oil tracked losses in competing vegetable oils. Dalian’s most-active soyoil contract DBYcv1 slipped 0.8%, while its palm oil contract DCPcv1 also fell 0.6%. Soyoil prices on the Chicago Board of Trade BOcv1 were trading down 0.03%.
Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.
Palm oil faces a key resistance at 3,156 ringgit per tonne, it may hover below this level of retrace towards a range of 3,004-3,062 ringgit, Reuters technical analyst Wang Tao said.