Kuala Lumpur, July 23 - Malaysian crude palm oil futures dived nearly 6 percent to plumb more than 7-1/2-month lows on Wednesday as weakness in crude oil seeped into vegetable oil markets across the globe.
Malaysian palm prices have been hit hard with almost all its gains wiped out this year due to a continuous stream of bearish news ranging from a delay in the launch of biodiesel mandates in the domestic market to Jakarta cutting palm export taxes.
The benchmark October contract dropped as much as 191 ringgit to 3,061 ringgit ($945) per tonne, the lowest since December 31. By the midday break, the contract was trading down 190 ringgit at 3,062 ringgit.
"A whole lot of investors are unwinding long positions as quickly as they can, the flow of bearish news is getting overpowering," said a trader with a foreign brokerage.
Indonesia has cut export taxes for palm oil products in August to bring them in line with international prices, the trade ministry said on Tuesday, a move which will see more demand shifting from Malaysia, traders said.
"The Jakarta tax cut and comments from the higher ups that biodiesel is not feasible this year have added to the overall downside that was started by lower crude oil and soyoil prices, along with high inventories of palm oil," said another trader.
Malaysian Commodities Minister Peter Chin told Reuters on Tuesday the country will not introduce a subsidised 2 percent palm-based biodiesel in the domestic demand this year despite a recent correction in the palm oil market as prices were still too high.
Oil prices held near a six-week low on Wednesday, as worries increased over dwindling U.S. demand at the same time as fears eased that Hurricane Dolly would deal a major blow to oil and gas supply.
A rebound in the dollar on the back of comments from a Federal Reserve official suggesting U.S. interest rates may have to rise also reduced the appeal of commodities, prompting investors to exit oil.
Vegetable oil markets suffered in Asian trade. Soyoil for August delivery at the Chicago Board of Trade lost 1.8 percent while the most-active January 2009 soyoil contract at China's Dalian Exchange dived 3.5 percent.