Palm oil futures touched a 10-month low despite data showing smaller-than-expected Malaysian stocks of the vegetable oil, as investors raised doubts over exports proving strong enough to maintain a squeeze on supplies.
Palm oil inventories in Malaysia, the second biggest producer and exporter of the vegetable oil after Indonesia, came in at 1.56m tonnes last month - a drop of some 42,000 tonnes month on month, and the weakest May figure in eight years.
The figure, from the Malaysian Palm Oil Board, was also more than 20,000 tonnes below the level that investors had expected, reflecting an unexpected jump to 1.51m tonnes in exports.
On a year-on-year basis, exports surged 17.4%, the biggest such increase in four years.
Nonetheless, palm oil futures eased in Kuala Lumpur, touching 2,425 ringgit a tonne at one point, the weakest for a benchmark contract since August last year, before closing at 2,432 ringgit a tonne, down 1.0% on the day.
Prices have come under pressure in part from strength in the ringgit which, in making Malaysian exports less competitive, puts downward pressure on local values.
However, Ivy Ng, head of Malaysian research at Kuala Lumpur-based broker CIMB, also flagged concerns that "exports are not going to be that strong" ahead, given the boost to demand from stockpiling ahead of the Ramadan festival, which began in late May.
Malaysian May exports last month had proved particularly strong last month to Pakistan, as well as India, Ms Ng said.
"I think we need to see how strong demand is in consuming countries before knowing if they will restock," and boost demand for supplies from the likes of Malaysian, she told Agrimoney.com.
Furthermore, there remain expectations that Malaysian palm oil production will "recover strongly in the second half of the year", Ms Ng said, even though noting that output appears to be continuing to suffer some dryness hangover from the El Nino more than a year ago.
Although Malaysia's production hit 1.65m tonnes last month - up more than 100,000 tonnes month on month, and some 20,000 tonnes ahead of market expectations – the figure remained below the 1.81m tonnes seen in 2015, before El Nino struck.
"Production has not fully recovered from the El Nino effect."
However, "everyone is pushing their forecast for a recovery in production expectations into the second half of the year", with ideas that "weather has been quite good" of late.
Still, at London broker VSA Capital, Ed Hugo flagged hope for palm oil bulls from the export data, saying that the May rise in shipments suggested that "perhaps we are finally beginning to see life in the palm oil export market again".
Mr Hugo noted that the "US soyoil premium over Malaysian palm oil has also increased in recent days, to about $130 a tonne, which should help boost near-term export demand at as well".
The two vegetable oils are interchangeable in some uses, including in making biodiesel – a market that may imminently come under the spotlight again, with investor talk that US officials are poised to release data on the domestic biodiesel mandate for 2018.
Furthermore, the US soyoil market is in focus over ideas that the US is poised to introduce steep tariffs on imports of biodiesel from Argentina and Indonesia, amid an anti-dumping probe.
By Mike Verdin