06/12/2022 (The Edge Markets) - Palm oil has dropped to the lowest in two weeks following further losses in rival soybean oil after the Biden administration published last week a proposal for biofuel-blending mandates that were lower than expectations.

Futures for the tropical oil fell 2.2% to RM3,881 a ton, and were set for a third decline in four days. Soybean oil has lost more than 12% in five days after the US Environmental Protection Agency called for only a modest increase in the amount of biofuel that must be mixed with fuel supplies in the next three years. This failed to match the growth seen by the renewable diesel industry.

The slump in cooking oil and wheat prices in recent days has eased fears over global food inflation, which spiked in March after Russia's invasion of Ukraine choked supplies from the Black Sea region. Still, world supplies remain tight, and any major crop failure could rekindle fears over global food security.

The decline in palm oil prices on Tuesday was curbed by estimates in a Bloomberg survey that production in No 2 grower Malaysia fell in November to a four-month low and that inventories declined for the first time since May.

While fundamentals favour higher prices, the weakness in external markets such as soybean oil is hurting sentiment, according to Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental.

"The mildly weaker ringgit should start providing some support," Thiagarajan said.

"However, since crucial technical levels of RM4,000 are broken, we can expect further downside from here."

The next major price boost may only come in late 2024 after the return of the El Nino weather phenomenon, said Bloomberg Intelligence analyst Alvin Tai. The event causes drought in Southeast Asia, cutting palm oil yields, and brings rainfall to soybean-growing regions in South America, Tai wrote in a report.

https://www.theedgemarkets.com/article/palm-oil-tumbles-twoweek-low-soybean-oil-extends-losses