Kuala Lumpur: A record-breaking rally for Asian vegetable oils markets was brought to a crashing halt on Tuesday by talks that China could intervene to curb rising prices.
Dalian soy oil futures fell by their daily limit while Malaysian palm oil futures suffered their biggest fall in nine months, with the Chicago soy oil and Indian soybean oil also caught up in the sell-off.
Traders and industry officials said the government was planning to release soy oil stocks after massive gains in Chinese futures prices ahead of an annual meeting of Parliament from Wednesday.
Applying brakes: Traders and industry officials say Beijing plans to release soya oil stocks after a surge in Chinese futures prices.
Even after Tuesday’s losses, Dalian and Chicago soy oil and Malaysian palm oil prices have gained more than a third this year and hit successive record highs.
“The government would not tolerate such big price rises, particularly during the Parliament meeting,” said Liu Defeng, a dealer with China International Futures Co. Ltd in Dalian.
Malaysian palm oil futures on Tuesday plunged 6% within minutes of hitting a record high, with the range for the day the widest ever.
“The funds are liquidating all over the region,” said a Malaysian palm futures trader.
But analysts said it was too early to call the rally over, with rising crude oil markets and concerns over supply, given the poor crop outlooks in India and China—the world’s top vegetable oil buyers.
“The activities in the Malaysian palm oil futures market have been dominated by hedge funds, but the fundamentals of growing demand and tightness in global vegetable oil supplies are rock solid,” said Fordyanto Widjaja, a Singapore-based analyst with Morgan Stanley.
Physical trade in Asia suffered a setback after volatility in the markets kept buyers away.
“There are no buyers in the market, it’s not just the destination markets that are quiet, the local market is also dead,” said Christopher Chai, a general manager with Malaysia’s Kwantas Corp. Bhd, which ships palm oil to China.
In Malaysia’s physical market, crude palm oil for March shipment in the southern region was quoted at 4,000-4,200 ringgit (Rs50,480-53,004) per tonne. There were no trades in the southern region, but in the central region one trade was reported at 4,380 ringgit per tonne.
Traders and industry officials said strong buying by India and China in the coming months is expected to support prices.
“Long-term bullishness still remains intact with high crude oil prices, strong consumption and drastically lower rapeseed crops in India and China,” said Sandeep Bajoria, chairperson of the All India Seed Association. “High consumption needs of these countries in the coming months will support prices,” he added.
A major concern for China is how to feed its population of 1.3 billion, which accounts for nearly a fifth of global grains consumption.
China commerce minister Chen Deming said on Monday that the country would increase its food reserves, although he declined to say what products he had in mind, or how much would be added to the stockpiles.
Chinese officials had said in mid-February that about 40% of the country’s planted acreage for rapeseed was damaged by harsh winter weather.
And a leading Indian trade body on Sunday had forecast that cold weather would cut rapeseed (Canola) output by as much 15%, boosting prospects of more palm oil shipments to the country.
Global vegetable oil prices often track energy markets as rapeseed and soybean oils get channelled into biodiesel in Europe and America.
Oil held well above $102 (Rs4,110.6) on Tuesday, off a record of almost $104 reached in the previous session, as the bullish momentum for commodities remained intact and ahead of a meeting of the Organization of the Petroleum Exporting Countries, which is expected to leave output unchanged.
Mayank Bhardwaj in New Delhi, Niluksi Koswanage in Kuala Lumpur and Miho Yoshikawa in Tokyo contributed to this story.