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Palm oil falls 2.8% on concerns over Malaysia-India tensions

Oil palm fruits are prepared to be processed at a factory in Dengkil April 9, 2008. REUTERS/Bazuki Muhammad/Files

KUALA LUMPUR (Reuters) - Malaysian palm oil futures fell by their most in eight months on Tuesday after the country’s prime minister defended his criticism of India even as it halted palm oil imports from the world’s second-largest producer following a diplomatic spat.

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange closed down 87 ringgit, or 2.8%, at 3,005 ringgit, logging its second straight day of losses. That was palm oil’s largest one-day fall since May 2, 2019.

India, the world’s biggest buyer of edible oils, last week restricted imports of refined palm oil and informally instructed traders to stay away from Malaysian palm oil. The move has effectively stopped all purchases from top supplier Malaysia, industry and government sources told Reuters.

In response, Malaysia’s Prime Minister Mahathir Mohamad, who had previously accused India of invading Kashmir and criticised its new religion-based citizenship law, indicated on Tuesday that he would continue to speak out against “wrong things” even if it costs his country financially.

India’s restriction will result in a quicker build-up of Malaysian Palm Oil Board (MPOB) stockpile when output starts to recover from the second quarter of 2020 and will cap upside in CPO prices as the world looks at MPOB’s stockpile as a proxy to the region’s overall stockpile, Maybank IB Research said.

Palm oil also tracked losses in rival vegetable oils. Dalian’s most-active soyoil contract dropped 1.6%, while its palm oil contract fell 2.8%. Soyoil prices on the Chicago Board of Trade fell 1.2%.

Palm oil is affected by price movements in related oils as it competes for a share in the global vegetable oils market.

However, losses could be limited on lower January production outlook and higher Indonesian crude palm oil prices, according to Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.

Meanwhile, 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 MPOB said last week.

Reporting by Mei Mei Chu; Editing by Uttaresh.V and Aditya Soni