Malaysian palm oil futures dropped on Friday, tracking falls in crude oil prices and competing vegetable oil markets, although losses were limited by concerns that monsoon rains could curb output in December. The benchmark February contract on the Bursa Malaysia Derivatives Exchange closed 1.1 percent lower at 2,171 ringgit ($621) per tonne. Prices had fallen to a one-week low of 2,119 ringgit on Tuesday.
Total traded volume stood at 46,017 lots of 25 tonnes, above the daily average of 35,000 lots. Brent crude futures fell to its lowest level in more than five years below $63 a barrel, under pressure from a glut of oil in the market. Low crude prices raised concern that buyers could shift fuel demand away from palm. Also, market participants expect December monsoon rains and flooding to significantly curb yields of palm fruit and reduce oil extraction rates.
"Demand is expected to garner momentum in the first quarter next year. Prices will eventually trade circa 2300-2400 ringgit by that period," said Lingam Supramaniam, director at Malaysia-based commodities firm Pelindung Bestari. In a note to clients, analysts at CIMB said they expected palm oil stocks to fall by 2 percent month-on-month by the end of December to 2.2 million tonnes due to lower production. "We expect palm oil production to decline by 9 percent month-on-month to 1.6 million tonnes in December 2014 due to seasonal factors," CIMB said.
In competing vegetable oil markets, the US soyoil contract for January edged down 0.3 percent in late Asian trade, while the most active May soybean oil contract on the Dalian Commodity Exchange fell 0.5 percent. US soybean futures were 0.4 percent lower but were still on track for their second consecutive weekly gain. India's palm oil imports fell 8 percent to 796,587 tonnes in November from a month earlier, data from the Solvent Extractors' Association of India (SEA) showed.
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