Palm oil prices reverse gains to touch near three-week low

Friday, 18 February 2011 04:18 - - {{hitsCtrl.values.hits}}

JAKARTA (Reuters): Malaysian palm oil futures reversed earlier gains to touch a near three-week low on Thursday, on worries about fund selling and concerns that prices had overrun the fundamentals.

The benchmark May 2011 crude palm oil contract on Bursa Malaysia Derivatives fell 0.5 per cent to 3,726 Malaysian ringgit ($1,223) a tonne after going as low as 3,722 ringgit – a level unseen since Jan. 28.

On Feb. 10, prices touched 3,967 ringgit, a peak not seen since March 2008 on concerns that seasonally heavy rains have stalled harvesting in top producers Indonesia and Malaysia.

“It’s been pretty volatile,” said a palm oil analyst. “There is concern over normalisation of weather. “You are at the peak of tight supply, and it should get better as inventories and production increases throughout the year.”

Overall traded volume stood at 5,998 lots of 25 tonnes each, compared with a total of 14,551 lots on Wednesday.

In related markets, the Chicago Board of Trade wheat for March delivery rose 0.81 per cent to $8.43-3/4 per bushel by 0326 GMT, Aedging back towards recent highs after a bout of fund selling saw prices drop this week.

“The last few days’ drop has not come from palm oil but soy,” said one palm oil trader. “With the CBOT dropping in the last two days, it’s not hard to see why palm is under pressure.”

Traders are also keeping close tabs on any possible changes to soybean and palm oil import taxes in top consumer China.

China will import an estimated 3.13 million tonnes of soybeans in February, the Commerce Ministry said on Wednesday, hiking its forecast from 2.73 million tonnes previously, but still below March 2010 levels. “There is a rumour that China is going to do some downward adjustment to their import tax for soy, while leaving palm unchanged,” said a trader. “That will put some pressure on palm oil.”

The most-active September 2011 soy oil on the Dalian Commodity Exchange eased to 10,490 yuan versus an open at 10,560 yuan.

“Apparently China soy oil has reacted to the rumour although it hasn’t been confirmed, but it is possible. Import tax was cut from three per cent to one per cent in 2007,” said a trader with Shanghai-based foreign brokerage.

Currently, soy attracts an import tax of three per cent.

Global palm oil production stands at about 45 million tonnes per year, with China buying around seven million tonnes.

ICDX’s April CPO futures contract was at 11,060 rupiah per kg, compared to 11,185 rupiah per kg when it opened. Market volume was 249 lots of 10 tonnes each.