KUALA LUMPUR (May 12): Palm oil is the latest product to be swept up in the global commodity rally, deepening concerns about food inflation that’s already at the highest in seven years.
The world’s most consumed edible oil, used in everything from chocolate to lipstick and soap, sprinted through RM4,500 a ton in Kuala Lumpur on Wednesday to climb 4% to the highest ever level.
Prices of farm crops from soybeans to wheat, corn and vegetable oils have soared at a time when industrial commodities have been climbing too, threatening to rekindle global inflation and spur increases in interest rates.
A United Nations gauge of world food costs climbed for an 11th month in April, extending its rally to the highest since 2014. The increases are squeezing consumer spending power at a time when many around the world are struggling to cope with the Covid-19 pandemic, poverty and hunger.
Benchmark palm oil futures climbed 4% to RM4,525 a ton, before closing at RM4,524 in Kuala Lumpur. That followed a rally in farm prices overnight when soybeans burst through US$16 a bushel and soybean oil, a direct rival of palm, climbed to the highest since 2008. Crop prices have been rising because of weather damage and booming demand from China.
The market is now closed for the Eid-al-Fitr holiday and reopens Monday. The price jump comes just as India, the world’s biggest importer of palm oil, is suffering from the globe’s worst health crisis because of Covid.
“Most Indian buyers are either on the sidelines or just buying hand-to-mouth due to high prices,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. But palm is cheaper than soyoil and is a reason for strong exports from Malaysia despite weak seasonal demand.
Palm’s relative cheapness could lead to replacement of soybean oil. “There’s definitely substitution happening in India and China as palm is the cheapest edible oil in the market,” said Paramalingam Supramaniam, director at Selangor-based broker Pelindung Bestari. “It’ll mostly take place in cooking oil. Products like instant noodles will remain unchanged.”
