Malaysian palm oil slides 3.7 percent

Malaysian palm oil tumbled 3.7 percent on Tuesday as investors unwound positions on expectations of higher production this month and a stronger ringgit currency hitting refining margins. Output in Malaysia's key southern growing region, which accounts for 30 percent of national output, is set to strengthen in March on favourable growing weather, traders and planters said.
The higher output comes as the ringgit strengthens against the dollar, making crude palm oil used for refined products more expensive at time when orders have been slow. "The fundamentals are turning bearish. Production is set to jump this month and demand is not reacting in the same time. The stronger ringgit just squeezes margins," said a trader with a foreign commodity brokerage.
The benchmark June 2011 crude palm oil contract on Bursa Malaysia Derivatives dropped as much as 129 ringgit, to 3,291 ringgit($1,085)a tonne. It later settled at 3,308 ringgit. Overall volumes stood at 25,617 lots of 25 tonnes each, much higher than the expected volumes of 15,000 lots at the close. Some millers are pegging palm oil output in Malaysia's southern Johor state to have jumped 24 percent in the first 20 days of March, as oil palms also move into a higher production cycle.
The view largely contrasts with the last two months when floods swamped the state, cutting off transport networks and stalling harvesting. "The rains, in the end, have refreshed the oil palms that have gone through some erratic, drier weather in 2009 and 2010," said a planter in Johor state that borders Singapore. Malaysia's palm oil exports fell by at least a tenth during March 1-20, versus the same period a month ago, weighed down by a slowdown in orders from China and the European Union, cargo surveyors reported on Monday.
Palm oil prices have fallen 11 percent so far this year, with the declines more pronounced in March on lower exports, the Japan earthquake and nuclear crisis and now, expectations of higher production. Top producer Indonesia cut its palm oil export tax for April to 22.5 percent from 25 percent, the government said on Tuesday, in line with lower international prices in March.