Malaysian palm oil futures edged 0.6 percent lower in tight trade on Tuesday over demand concerns, although losses were capped by expectations of disappointing output in July that would prevent a sudden rise in stocks. Palm oil inventories in Malaysia eased to a two-year low of 1.65 million tonnes in June as demand during Ramazan propped up exports and helped offset a rise in output.
Demand has since tapered off and exports have dropped about 14 percent in the July 1-20 period from a month earlier. But traders say daily average shipments are still healthy and they would watch export data to gauge demand strength. Investors expect July's output to miss initial estimates as plantation workers get shorter hours during Ramazan. Workers in the top producing states on the island of Borneo also typically take longer leaves to return home.
"Production is a bit disappointing. We want to see whether output is coming in as expected, or a bit on the low side," said a trader with a foreign commodities brokerage in Kuala Lumpur. The benchmark October contract on the Bursa Malaysia Derivatives Exchange fell 0.6 percent to close at 2,258 ringgit ($711) per tonne. Prices were stuck in a tight range between 2,251 and 2,283 ringgit.
Total traded volume stood at 34,198 lots of 25 tonnes each, in line with the average 35,000 lots. Rising crude oil prices have burnished the appeal of palm oil as a cheaper alternative biofuel, supporting the tropical oil. In vegetable oil markets, the US soyoil contract for December fell 0.4 percent in late Asian trade. The most-active January soybean oil contract on the Dalian Commodities Exchange gained 0.9 percent.
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