Palm oil drops after holiday, dragged by weak soyaoil

Malaysian palm oil futures fell to their lowest level in 2-1/2 weeks on Monday when the market reopened after the Lunar New Year holiday as losses in rival soyaoil markets plus sluggish export demand outweighed a drop in the ringgit. The US soyaoil contract for May lost as much as 1.3 percent in late Asian trade, forcing palm, a common food and fuel substitute, to give up last week's gains and drop to 2,237 ringgit, the lowest since February 5.
"Weak soyabean oil during the last three trading days should apply pressure (to palm)," said a trader with a foreign commodities firm in Kuala Lumpur. "At the same time, the weak Malaysian ringgit may limit or delay the fall." The benchmark May contract on the Bursa Malaysia Derivatives Exchange, which closed for the Chinese festival after the morning session last Wednesday, ended down 2.7 percent at 2,239 ringgit per tonne on Monday.
Traded volume was 39,157 tonnes, above the usual average of 35,000 lots. Export data from cargo surveyor Intertek Testing Services (ITS) showed that shipments of Malaysian palm oil products from February 1-20 were 3.6 percent weaker than in the same period in January. Another cargo surveyor Societe Generale de Surveillance reported a near 1 percent fall.
While the decline was less steep than earlier in February, market players are concerned that poor export demand, amid prospects of improving palm yields, will lead to a build-up in stocks in coming months.
However, some traders said that with the ringgit falling to 3.6445 to the dollar, the slide in the palm contract was overdone and prices could be poised for a rebound. A weak ringgit usually spurs buying interest from overseas customers as the ringgit-priced feedstock becomes cheaper for them. "There's nothing really to suggest why the market should go down so much," said a second Kuala Lumpur-based trader.
"It's not sustainable. Some people might be taking advantage to push the market down before all the other major markets come back into play," the trader added. China's markets are still on the Lunar New Year break and will reopen on February 25. In other markets, oil prices slipped on Monday on worries about oversupply in North America, with Brent futures dropping below $60 a barrel and US contracts hovering around $50.30.