Malaysian palm oil futures erased earlier gains to fall almost 1 percent on Tuesday due to higher than forecast inventory levels from a government report released during the session's midday break. Benchmark palm oil futures for March delivery on the Bursa Malaysia Derivatives Exchange fell 0.96 percent to 3,082 ringgit ($689) a tonne at the close.
Traded volumes stood at 65,275 lots of 25 tonnes each on Tuesday evening. A futures trader said that the market, which was earlier up on stronger exports, retreated after data from industry regulator the Malaysian Palm Oil Board (MPOB) showed rising end-stocks in December. "The market will see a bit of correction in the short term, but in the medium term the market remains well supported by stronger exports and the weaker ringgit," he said.
The MPOB data showed a surprise rise in end-stocks to 1.67 million tonnes as output fell more than forecast, down 6.4 percent from November to 1.47 million tonnes. Exports, however, fell 7.5 percent in December from a month earlier. In January, Malaysia palm oil shipments rose 8-10 percent in the first 10 days of the month, compared with the corresponding period in December, led by stronger demand from China, data from cargo surveyors showed.
The rise in demand was due to buying from China, as the world's second-largest palm oil consumer after India prepares for the Lunar New Year celebrations, which typically lead to a higher intake of palm oil for cooking. In related vegetable oils, the March soyabean oil contract on the CBOT was down 0.7 percent, while the May soyabean oil contract on the Dalian Commodity Exchange rose 0.9 percent. The May contract for Dalian palm olein gained 1.3 percent.
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