Palm oil from Indonesia, a rival producer, will also become relatively cheaper. Prices of the most active palm oil futures contract on the Malaysian Derivatives Exchange fell to the lowest since August 19, 2003.
Palm oil for April delivery declined as much as 20 ringgit, or 1.5%, to 1,276 ringgit a tonne.
The possible ringgit re-peg is definitely an issue, said Sukatono, general manager of PT Lampung Interpertiwi, which has 20,000 hectares of oil palm plantations in Sumatra, Indonesia. People are selling as they dont dare hold any big position.
The Malaysian ringgit was fixed at 3.8 to the dollar since 1998 as the government wanted to prevent speculation in the currency during the Asian financial crisis.
Malaysias economic growth has accelerated since then, increasing calls for the ringgit to be revalued. The Malaysian Institute of Economic Research said in a report last week the government should review the currency peg now rather than later as global economic prospects are getting less encouraging in the next two years, and the expectations that the dollar slide will go on further.
Malaysias second finance minister Nor Mohamed Yakcop said on January 25 that the country has a large window of opportunity for any move to change its peg to the dollar because the economy will be strong for a long time. Malaysia and Indonesia produce about 80% of the worlds palm oil. Palm oil is used to make cooking oil and chemicals used in soaps and detergents.