Vegoils Palm dips to one-week low; likely drop in output lends support

by **Cals** Thu 07 Nov 2013, 00:56

Vegoils Palm dips to one-week low; likely drop in output lends support

Business & Markets 2013

Written by Reuters

Wednesday, 06 November 2013 19:08

(06/11/13 18:22:36)

* Lower margins spur profit-taking, but smaller output supports -trader
* Palm oil to test support at 2,544 ringgit-technicals

KUALA LUMPUR (Nov 6): Malaysian palm oil futures fell to a one-week low on Wednesday, as investors continued to take profits after prices surged to one-year highs last week, but the prospect of a drop in production capped losses.

Benchmark prices had their biggest weekly gain in more than four years last week, lifted by strong Asian demand and expectations that Southeast Asian palm oil output has begun to taper off.

Malaysia and Indonesia, which account for about 90 percent of the world's palm oil supply, should start to see smaller yields of the tropical oil, as seasonal monsoon rains roll in.

"There's some mild profit-taking at this level, since margins are lower, but the downside could be limited because a lot of investors are expecting bullish to neutral MPOB numbers," said a trader with a local commodities brokerage, referring to the Malaysian Palm Oil Board, the industry regulator.

"November's production could even be lower by 5-8 percent," the trader added. A drop in output would eat into stocks, which stood at 1.78 million tonnes, at the end of September.

The MPOB will release data on Malaysia's end-October palm oil stocks, exports and output, on Nov 11.

At Wednesday's close, the benchmark January contract on the Bursa Malaysia Derivatives Exchange, had dropped 1.3 percent to 2,547 ringgit ($801) per tonne. Earlier, it hit 2,545 ringgit — the lowest since Oct 30.

Total traded volume stood at 36,225 lots of 25 tonnes each, slightly higher than the average 35,000 lots.

Technicals showed Malaysian palm oil was expected to test support at 2,544 ringgit per tonne, and a break below that would lead to a further loss to 2,491 ringgit, said Reuters market analyst Wang Tao.

The weaker Malaysian ringgit also provided some support on Wednesday, as it stokes buying interest from overseas buyers. The currency had fallen 0.19 percent to 3.1800 against the U.S. dollar, by late trade.

In other markets, Brent oil rose to $106 a barrel, supported by a fall in U.S. oil product inventories and worries about prolonged disruption to supply from Libya, as the peak winter heating season looms.

In competing vegetable oil markets, the U.S. soyoil contract for December rose 0.1 percent, in late Asian trade. The most active May soybean oil contract on the Dalian Commodities Exchange, fell 0.7 percent.