Malaysian crude palm oil futures ended one percent lower on Wednesday as traders reduced positions on fears of a slowdown in exports following the ringlet's rise to eight-year highs against the US dollar.
Some traders added that buyers in India, China and Pakistan might also defer purchases in the hope Malaysian prices could fall further because of rising domestic production, while domestic stocks remain at high levels.
"The main factor is the ringgit. The other factors are high stocks and no export demand," said a Kuala Lumpur trader. The Malaysian currency hit an eight-year high of around 3.67 per US dollar on Wednesday.
It has been rising steadily on broad-based dollar weakness, rising corporate flows and an absence of central bank intervention. A stronger ringgit against the US dollar makes palm oil more expensive for overseas buyers.
The June contract on Bursar Malaysia Derivatives ended 16 ringgit lower at 1,411 ringgit ($384.5) a tonne. May was down 14 ringgit at 1,395. Volumes for the June contract were 3,981 lots of 25 tonnes each.
"It looks like the June contract could test 1,400 ringgit," said one trader. "It's a bearish market."
On Tuesday, the market had rebounded to close higher on short covering at lower levels. The Malaysian palm oil market is also seeing some downward pressure from easing soya oil prices after the US Department of Agriculture estimated record soya acreage for the new crop.
On Tuesday, the Chicago Board of Trade soyabean market fell to a four-month low. May soyaoil ended 0.20 cent weaker at 22.44 cents per lb, breaking through key support at 22.50. The back months ended steady to down 0.22.
But Hamburg-based analyst Oil World said palm oil prices could rise on a possible increase in global physical buying in April to June. It estimated world 2005/06 palm oil production at 34.4 million tonnes, up 1.1 million on the season but a smaller rate of growth than the 3.4 million tonne rise seen in 2004/05.
In the physical palm oil market, some deals for immediate shipments were sealed at 1,400 ringgit a tonne. Some sellers were offering at 1,402. "But buying interest is nothing to be excited about. Volumes are small," said one trader.
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