Malaysian palm oil futures edged down on Wednesday, tracking weak soy markets, as investors fretted about surging global supply of the competing oilseed that could snatch demand away from the tropical palm.
US soybeans traded near a 19-month low in the wake of a government agricultural report that showed larger-than-expected existing supplies as well as improving weather conditions for new crops.
Larger supplies of soybeans for crushing into soyoil could channel food and fuel demand away from palm oil. The drop in soy oil prices have also narrowed palm oil’s discount to the rival vegetable oil, traders said.
"Soybean and soybean oil prices have touched new lows and dragged our market down," said a trader with a foreign commodities brokerage in Malaysia.
"For the past week the spread between crude palm oil and soy has narrowed to US$175 per tonne. All the while it has been above US$200," the trader added.
By the mid-day break, the benchmark December contract on the Bursa Malaysia Derivatives Exchange had edged down 0.5 per cent to RM2,317 per tonne. Prices traded in a range of RM2,306-RM2,321.
Total traded volumes stood at 8,456 lots of 25 tonnes each, below the average 12,500 lots.
Technicals showed that signals remain neutral for Malaysian palm oil and will become clearer when the contract gets out of a range of RM2,265-RM2,332 per tonne, Reuters market analyst Wang Tao said.
The shutdown of the USgovernment, which includes the US
Department of Agriculture, due to a budget impasse also weighed on agricultural markets as many traders rely on USDA data for key information on crop conditions and export sales.
The Malaysian ringgit improved another 0.11 per cent against the US dollar early Wednesday, further capping palm as it made the ringgit-priced feedstock less attractive for overseas buyers and refiners.
In other markets, Brent crude extended losses below US$108 on Wednesday on concerns the US government shutdown would reduce demand for commodities, while expectations that US oil inventories rose last week also put pressure on prices.
Southeast Asia’s net oil imports will more than double by 2035, costing US$240 billion at current prices, to meet strong energy demand growth to fuel the region’s fast-growing economies, the International Energy Agency said.
In competing vegetable oil markets, the US soyoil contract for December crept up 0.1 per cent in early Asian trade.
The Dalian Commodities Exchange is closed for a holiday and will reopen on October 8.-- Reuters