(Bloomberg) --
Palm oil dropped to a five-month low on concern about poor purchases by top buyer India, Malaysia's move to allow the industry to operate during a nationwide lockdown and an overnight slump in petroleum.
The world's most-consumed edible oil fell 1.3% to close at its lowest level since October as a rout in crude oil prices to an 18-year low on Wednesday further diminished its allure as an alternative fuel. Petroleum prices recovered on Thursday, but sentiment remains fragile.
“The overnight drop in crude oil prices is lowering palm oil prices,” said Rajesh Modi, a trader at Sprint Exim Pte in Singapore. “Low buying by India is also a bearish factor,” he said, adding that if India increases buying later in the year, prices may get some support.
Palm oil purchases by India may slump to an almost nine-year low in March as the coronavirus pandemic discourages people from eating in restaurants, according to G.G. Patel, managing partner of GGN Research.
The market is facing pressure as the tropical oil's premium to gasoil is about $216 a ton, near the highest in three years, compared with an average discount of $8 over the past year, making discretionary use in biofuel prohibitive.
“The spread is largely unfavorable for palm oil,” said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based broker and consultant. If the current situation persists for a relatively longer period, the elevated spread may jeopardize biofuel-based demand and hit biodiesel-mandated programs in Indonesia and Malaysia, he said.
Investors are nervous over the rapid spread of the coronavirus, which threatens global economic activity and commodity demand. Palm oil futures have slumped more than 27% this quarter after surging 44% in 2019.
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