Published: Thursday September 13, 2012 MYT 1:47:00 PM
VEGOILS-Rising stocks to drag on palm oil futures
KUALA LUMPUR: Malaysian palm oil futures dropped on Thursday on expectations of output rising this month that could lead to a stock build-up, although losses were limited by expectations of strong Asian demand and tight supply of competing soyoil.
Palm oil prices have lost 8 percent so far this year thanks to the euro zone debt crisis stirring concerns of weaker global growth and commodity demand. In recent weeks, palm oil has dropped below 3,000 ringgit on rising stocks.
"The market is bearish. There's no doubt about it because fundamentally stocks are very high and there is no sign that production is slowing down," said a trader with a local commodities brokerage.
"Everybody knows at the back of their mind that production is climbing higher towards the peak, maybe in October," the trader added.
By the midday break, the benchmark November contract on the Bursa Malaysia Derivatives Exchange slipped 0.3 percent to 2,922 ringgit ($947.7) per tonne.
Total traded volume stood at 11,325 lots of 25 tonnes each, slightly lower than the usual 12,500 lots.
Technicals showed palm oil will end its current rebound around a resistance at 2,960 ringgit per tonne and drop back to its Sept. 11 low of 2,874 ringgit, said Reuters market analyst Wang Tao.
Traders have said the palm oil's widening discount to soyoil limit prices from falling as consumers shift their purchases to the tropical oil produced in Indonesia and Malaysia.
"Palm oil is now so much discounted against soy bean oil with the cap reaching $300. The market is just waiting for the time to bounce back and climb higher. Eventually, demand will start setting in," said the trader.
For now, palm oil's discount to soyoil could widen further after the U.S. Department of Agriculture cut its estimate of the soybean crop in the world's top grain-exporting nation.
The USDA pegged the soybean harvest at 2.634 billion bushels, down from last month's 2.692 billion and below analysts' average estimate of 2.657 billion. Ending stocks next summer were projected to be the lowest in nine years at 115 million, unchanged from August' s estimate.
Brent crude steadied near $116 a barrel on Thursday, as traders awaited a U.S. Federal Reserve policy decision that is expected to include further stimulus action to bolster the world's largest economy.
In other vegetable oil markets, U.S. soyoil for December delivery rose 0.5 percent. The most active January 2013 soyoil contract on the Dalian Commodity Exchange rose 1.4 percent. - Reuters