Malaysian crude palm oil futures ended half a percent down on Thursday, surrendering early gains, after the market's leading forecaster put current month stocks sharply above trade estimates.
Ivan Wong projected closing stocks of palm oil in October at 1.44-1.45 million tonnes, against industry expectations of 1.30-1.40 million tonnes.
The benchmark third-month January crude palm oil contract on the Malaysia Derivatives Exchange ended 8 ringgit down at 1,394 ringgit ($366.84) a tonne - below 1,400 ringgit which has been a key support for the market for weeks.
The contract had risen as much as 11 ringgit earlier in the day to 1,413 ringgit. Its intraday low was 1,391. But analysts feared it could see a bigger correction in coming weeks.
They said the last time the market was burdened by such a heavy inventory of palm oil was four years back, when stocks stood at 1.4 million tonnes in October 2000.
But the average price of crude palm oil then was around 800 ringgit a tonne.
The US Department of Agriculture has estimated that the 2004 soyabean crop will produce a record 3.1 billion bushels - due to be crushed after another large supply of Latin American soyoil arriving from November. Soyoil is palm oil's main rival in export markets and their prices often move in step.
Palm oil exporters also fear that India - the world's biggest buyer of edible oils - will only make limited purchases until December after having taken abundant supplies for festivities lasting to the year-end.
Forecaster Wong said Malaysian palm oil stocks will balloon this month because exports were expected to fall to around 1.18 million tonnes from September's official record of 1.29 million tonnes.
But he expected production to hold up reasonably well at 1.41 million tonnes compared with September's 1.49 million tonnes - although dealers think harvesting activity will slow down with the start of the Muslim fasting month of Ramazan.
Aside from January futures, other palm oil futures also saw a drop of 2 to 8 ringgit at Thursday's close. Trade totalled 6,370 lots of 25 tonnes each.
US soyoil futures, which often influence Malaysian palm oil prices, did not lend much impact after closing 0.10 cent a lb down to flat in Wednesday's Chicago trade.
Physical crude palm oil prices, however, bucked the trend in futures, with sellers keeping offer rates up after extensive short covering activity on Wednesday. Around 25,000 tonnes of RBD palm olein for November shipment was purchased on Wednesday by a commodities house shipping to the Middle East, dealers said.
Physical oil for October and November saw buyers/sellers at 1,440/1,445 ringgit a tonne in Malaysia's southern and central regions on Thursday, versus Wednesday's close of 1,430/1,435. Trades were reported at 1450-1,440 ringgit.
PALM OIL FUTURES:
October (south): 1445
Open/High/Low: 1404/1413/1391
Previous close: 1435
PALM OIL PHYSICALS:
January (3rd month): 1394
Previous settlement: 1402
FUTURES: Benchmark January down 8 ringgit at 1,394 ringgit ($366.84) a tonne after leading forecaster Ivan Wong surprised market with high stock estimates for October.
PHYSICALS: Bucked trend in futures, with both October and November seeing a 10 ringgit rise in the asking price after strong short-covering activity seen on Wednesday.
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