Palm oil sees biggest drop in three weeks

Malaysian palm oil rose to its highest levels in two and a half years on Tuesday before dropping sharply in a market correction in the evening and on concerns about weak export demand. In its previous session, palm posted its strongest daily gain two months, tracking rises in soyaoil on the Chicago Board of Trade and China's Dalian Commodity Exchange.
It also surged on forecasts of lower output as the lagging dry weather effects from this year's El Nino and year-end monsoon rains cap production levels. Benchmark palm oil futures for January on the Bursa Malaysia Derivatives Exchange fell 2 percent to 2,714 ringgit ($653) a tonne at the end of the trading day, its biggest decline since September 28.
It had earlier climbed to an intraday high of 2,800 ringgit, its strongest level since March 14, 2014. Traded volumes stood at 64,716 lots of 25 tonnes each on Tuesday evening, surpassing the 2015 daily average of 44,600 lots. "The market is seeing a healthy correction," said a futures trader from Kuala Lumpur, adding the price gains in palm and soyaoil was a reaction on news of China's rules to curb risk and speculation in structured products which pumped billions of dollars into the commodity futures markets.
"There was some spillover strength from soyaoil ... But I still believe the demand needs to improve to sustain the recent rally," said another trader. Palm oil prices are impacted by soyaoil's performance, as they compete for a share in the global vegetable oils market. Exports of the tropical oil from Malaysia, the world's second largest producer, fell in the first half of October by about 5 to 6 percent from the corresponding period last month, according to cargo surveyor data. Demand for palm oil is expected to weaken towards the end of the year in top consumers India and China, who prefer other vegetable oils to palm as it solidifies in cold weather. In other related oils, the December soyabean oil contract on the Chicago Board of Trade was down 0.3 percent, while the January soyabean oil contract on China's Dalian Commodity Exchange rose 0.4 percent.