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September 19, 2008

China defaults seen dragging down palm oil prices
Importers from China, the world's largest vegetable oil buyer, have defaulted on palm oil shipments, heightening fears of a massive stock congestion in Asian producing countries, reported Reuters.

Refineries and tanks are already overflowing with crude and refined palm oil products in Malaysia and Indonesia, the world's top producers of the vegetable oil.

News of the China defaults comes on the heels of Indian palm oil buyers trying to defer some shipments on Wednesday after a heavy sell-off in vegetable oil markets, while traders said Pakistan had yet to cover its needs for the fourth quarter.

"Palm prices could plummet further as defaults and deferments will lead to a slowdown in exports while refiners and traders will be left with cargoes with no immediate place go to," said a leading Malaysian trader. "It's a temporary issue but worrying."

Malaysian palm exports have started to slow, with cargo surveyors reporting declines of up to 8.5 percent during the Sept. 1-15 period, while September stocks, which opened at a lower-than-expected 1.8 million tonnes, are expected to balloon.

Chinese importers defaulted on at least 100,000 tonnes of RBD palm olein after prices fell nearly 15 percent this week, traders said on Thursday.

"Up to this point, about 100,000 tonnes of refined palm olein have been defaulted, and there could be much more up for renegotiation," said a top Singapore trader who mostly deals with China.

Traders said the vegetable oil shipments were headed for northern Chinese port city of Tianjin and Guangzhou port.

In the last round of steep price falls in August, India and China cancelled or renegotiated around 800,000 tonnes of palm oil deals.

Palm oil prices, trading at more than half of the record 4,486 ringgit hit in early March, have been hobbled by bumper harvests, slowing global demand, weaker oil markets and a flight of funds from risky assets as some Wall Street firms teeter on the verge of bankruptcy.

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