Malaysian palm oil futures fell on Friday, putting prices on track for their worst weekly performance in six months after forecasts of rising output in Southeast Asia fanned fears that stocks of the tropical oil would surge.
Traders and analysts warn that inventory levels in Malaysia, the world’s No.2 producer, may climb higher from September onwards as steadily higher production outweigh exports.
Investors also turned bearish after leading industry analyst Dorab Mistry said Indonesia and Malaysia will seasonally produce more palm oil until at least until April 2014. Mistry said this would add to the supply of competing oilseeds and drag palm prices to new lows in January.
"We’re moving into the high production period. People are foreseeing that output will go up in September, followed by a rise in the end-stocks," said a trader with a foreign commodities brokerage.
"It has put a damper on the market. I’m looking at a range of RM2,300-RM2,370 for the next 1-2 days."
By the mid-day break, the benchmark November contract on the Bursa Malaysia Derivatives Exchange had lost 0.4 per cent to RM2,334 per tonne. Prices for the week have dropped 4.5 per cent so far and look to be headed for their worst weekly performance since end-March.
Total traded volumes stood at 14,300 lots of 25 tonnes each, sightly above the average 12,500 lots.
Technicals showed palm oil looks neutral in a range of RM2,323-RM2,361 per tonne, and an escape will indicate a direction, says Reuters market analyst Wang Tao.
Malaysian palm oil stocks at end-August stood at 1.67 million tonnes, almost flat from the 1.66 million tonnes at end-July, as healthy consumption for festivals such as the Muslim Eid al-Fitr and China’s Mid-Autumn celebrations offset an increase in output.
Traders, however, say export demand may dwindle now that the festive season is over.
Cargo surveyors will release export data for the first 15 days of September next Tuesday. Malaysian markets will be closed on Monday for the Malaysia Day holiday.
In other markets, Brent crude futures nudged higher on Friday towards US$113 a barrel on supply concerns, but the contract was still set for its biggest weekly drop in nearly three months as fears of a US-led military attack on Syria recede.
In vegetable oil markets, the US soyoil contract for December gained 0.2 per cent in early Asian trade. The most-active January soybean oil contract on the Dalian Commodities Exchange edged down 0.1 per cent.-- Reuters