Vegoils Palm oil eases, but investors bullish on smaller output hopes

by **Cals** Tue 19 Nov 2013, 00:09

Vegoils Palm oil eases, but investors bullish on smaller output hopes

Business & Markets 2013

Written by Reuters

Monday, 18 November 2013 20:34

(Updates prices, adds graph and bullet on ringgit)
* Weak production in Q1 2014 could push prices to 2,700-2,800 rgt level -trader
* Palm oil to test support at 2,565 ringgit -technicals
* Ringgit gains 0.45 pct to 3.1880 late Monday

KUALA LUMPUR (Nov 18): Malaysian palm oil futures ended lower on Monday as traders booked profits after strong gains last week, but the prospect of seasonally weaker output in the world's top producers, Indonesia and Malaysia, buoyed prices.

Palm oil prices soared 4.1 percent last week, fuelled by fears that super typhoon Haiyan had caused severe damage to coconut crops in the Philippines, disrupting coconut oil supply from the world's biggest exporter and shifting demand to palm-based substitutes.

"Prices have gone up too fast and it's only proper that the market consolidates," said a trader with a local commodities brokerage.

"But since we don't see a major pick up in production, investors are taking a very bullish stance, especially as we get into the first quarter of the year - where production always dips," the Malaysia-based trader said.

"Based on this, after all this consolidation, the market will gradually go close to 2,700 ringgit, maybe even 2,800 ringgit in the first quarter of 2014."

By Monday's close, the benchmark February contract on the Bursa Malaysia Derivatives Exchange had fallen 0.9 percent to 2,590 ringgit ($814) per tonne. Prices were stuck in a range of 2,577-2,597 ringgit.

Total traded volume stood at 42,523 lots of 25 tonnes each, much higher than the average 35,000 lots.

A stronger ringgit also weighed on prices. The Malaysian currency gained 0.45 percent to 3.1880 against the greenback late Monday, making the ringgit-priced feedstock more expensive for overseas buyers.

Palm's export demand will also be in focus in November and December. Demand typically softens as countries in the northern hemisphere approach winter and buyers cut back purchases of the tropical oil that solidifies in cold temperatures.

But investors are hoping that China, the world's second largest palm oil buyer, will continue to import palm as buyers re-stock ahead of the start of the Lunar New Year festival in January.

Technicals showed that Malaysian palm oil is expected to test support at 2,565 ringgit per tonne, with a good chance of breaking this level and falling towards 2,506 ringgit, said Reuters market analyst Wang Tao.

In other markets, Brent crude dropped below $108 a barrel on Monday as traders focused on a surge in Saudi exports in the third quarter, while hopes that a resumption of talks between sanctions-hit Iran and major powers may lead to more oil supply also weighed.

In competing vegetable oil markets, the U.S. soyoil contract for December was flat in late Asian trade. The most active May soybean oil contract on the Dalian Commodities Exchange fell 1.5 percent.