Malaysian palm oil futures fell on Wednesday, weighed down by a stronger ringgit, but losses were capped on expectations that stocks in the world’s No.2 producer will remain in check this year.
Weaker soyoil markets in the United States and China, typically tracked by palm, also dragged the tropical oil lower.
The US soyoil contract for December fell 0.5 per cent in early Asian trade, while the most-active January soybean oil contract on the Dalian Commodities Exchange also fell 0.5 per cent.
The ringgit advanced as much as 0.76 per cent early Wednesday as investors covered bearish positions and awaited Malaysia’s 2014 budget that will be announced on Friday. A stronger ringgit curbs buying interest as it makes the feedstock more expensive for overseas buyers and refiners.
"Today it’s basically because the ringgit strengthened, soyoil markets dropped, and crude prices came down," said a trader with a foreign commodities brokerage.
"The market dropped, but not much. Palm is still holding very well and the immediate support level is RM2,400," the trader added.
By the mid-day break, the benchmark January contract on the Bursa Malaysia Derivatives Exchange had dropped 0.6 per cent to RM2,440 per tonne, but earlier hovered at RM2,449, near Tuesday’s one-and-a-half month high of RM2,456.
Total traded volume stood at 10,185 lots of 25 tonnes each, slightly lower than the usual 12,500 lots.
Palm was also pressured by falling crude oil prices, as it shifts demand away from crude palm oil as an alternate biodiesel feedstock.
Brent crude slipped below US$110 a barrel on Wednesday after disappointing US jobs data and a build in crude stockpiles raised concerns about oil demand in the world’s largest oil consumer.
But investors are optimistic that sluggish output will help keep Malaysian palm oil stocks below the 2 million tonne mark for the rest of 2013. End-September stocks were at 1.78 million tonnes.
"Normally towards winter, demand will slow down. But production will also seasonally go down towards the end of the year because of the monsoon season," the trader added.
Technicals were slightly bearish. Malaysian palm oil still faces resistance at RM2,449 per tonne, and may retrace to RM2,406, Reuters market analyst Wang Tao said.-- Reuters