Global recession jitters drive palm oil to month low

KUALA LUMPUR: Malaysian palm oil futures fell on Friday to their lowest in nearly a month as commodity markets across the board went into freefall on prospects of a global economic slowdown eroding commodity demand growth.

Third-month palm oil is set for its worst weekly performance since June as US and euro zone officials grapple with plans to support their economies, although traders are counting on strong festival demand to limit losses.

Traders are also looking out for announcements from India, the world's top palm oil buyer, on raising import tariff values to insulate the domestic refining industry after Indonesia cut its export taxes on processed palm oil.

The announcement could come at the Globoil India conference that starts on Friday, which features top industry analysts such as Godrej's Dorab Mistry, James Fry from LMC International and Thomas Mielke of Oil World.

"The main focus is the world economy for the market and to some extent, the Globoil conference," said a trader with a local brokerage in Kuala Lumpur.

"Fundamentals may be mildly supportive but it is getting overshadowed by the sell-off in commodity markets," he added.

By midday, benchmark December palm oil on the Bursa Malaysia Derivatives Exchange fell 0.7 percent to 2,989 ringgit ($948.21). Earlier in the session, the contract dropped to 2,961 ringgit a tonne, the lowest since Aug. 26.

Overall volumes were light, with 9,002 lots of 25 tonnes each changing hands, compared to the usual 12,500 lots.

Traders said palm oil prices has fared better than competing soyoil as the ringgit currency has fallen sharply in recent days against the US dollar, making palm oil feedstock much cheaper to process.

Also, palm oil has maintained a wide discount above $100 to soyoil from South America that ensures the tropical oil will capture the bulk of food demand.

And last minute orders for palm oil are likely to pour in ahead of India's Diwali festival in late October and China's Golden Week holiday early next month given the sharp declines in recent days.

Brent crude rose above $106 on Friday as investors took the opportunity to buy on the dip after a plunge in the previous session took prices to their lowest since early August.

US soyoil for October delivery fell 0.1 percent, extending losses from the previous session. The most active May 2012 soybean oil contract on China's Dalian Exchange lost 1.7 percent.

Copyright Reuters, 2011