Malaysian palm oil futures fell on Monday, handing back gains earlier in the session, sealing a third consecutive day of losses due to an unexpected rise in production numbers. The palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange fell 0.8 percent to close at 2,566 ringgit ($611.83) per tonne. Palm earlier fell to 2,563 ringgit - its lowest in more than a week.
Traded volume stood at 50,124 lots of 25 tonnes each. "The market is finally taking into cognisance that output is increasing," said a trader at a brokerage firm in Kuala Lumpur, citing data from the Southern Palm Oil Millers Association which showed a 2.6 percent output rise for the first 20 days of February compared with the same period in January.
"South America is going to harvest a record (soybean) crop yet again this year. Demand is a major concern in March." While industry experts have forecast palm oil's global production growth to fall next year, recent rainfall could diminish the impact of the El Nino weather pattern which brings crop-damaging dry weather across Southeast Asia.
Sluggish demand for palm oil has weighed on prices in recent weeks due to slower consumption from top importers China and India, and as the two countries switch to soybean to crush for domestic consumption. Record high stockpiles of South American soybean has been narrowing its spread with palm oil, reducing the demand for palm. Malaysian shipments of palm oil products fell by 10-12 percent in the first 20 days of February compared with the same time period a month ago, according to cargo surveyor data on Monday.
Palm oil is expected to test support at 2,576 per tonne, a break below which could cause a loss to the next support level at 2,549 ringgit, according to Reuters market analyst for commodities and energy technicals, Wang Tao. In competing vegetable oil markets, the May soybean oil contract on the Dalian Commodity Exchange and the Chicago soyoil contract both gained 0.5 percent.
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