Malaysian palm oil futures stretched losses into a second day on Wednesday, falling to a one-week low as profit-taking continued to weigh, with some investors worried that higher prices of palm oil could see key consumers switching to rival edible oils. Benchmark prices surged to an 18-month high of 2,916 ringgit per tonne on Tuesday after industry data showed that end-stocks in Malaysia, the world's second-largest grower, dropped to an eight-month low of 1.66 million tonnes. But prices later gave up gains as traders booked profits.
Market players widely expect inventories shrink further as dry weather in the region continues to hinder palm oil production. Malaysia's total output in February was only 1.28 million tonnes, a 14 percent drop from a month ago. "Another profit-taking day. There's also retracement and correction in a heavily overbought market," said a trader with a foreign commodities brokerage in Kuala Lumpur.
The benchmark May contract on the Bursa Malaysia Derivatives Exchange had inched down 1.8 percent to 2,821 ringgit ($858) per tonne by Wednesday's close. Prices had earlier dipped to 2,808 ringgit, their lowest since March 6. Total traded volume stood at 71,678 lots of 25 tonnes, more than double the average 35,000 lots. Technicals show that Malaysian palm oil may fall to 2,764 ringgit per tonne, as indicated by a Fibonacci retracement analysis, Reuters market analyst Wang Tao said.
Palm prices could rise above 3,500 ringgit - a level last touched in April 2012 - if the crop-damaging El Nino weather patterns return to plague oil palm plantations, leading analysts earlier warned. In other competing vegetable oil markets, the US soyoil contract for May slumped 1.3 percent in late Asian trade, while the most active September soybean oil contract on the Dalian Commodities Exchange was nearly flat.
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