Malaysian palm oil futures reversed earlier gains to fall in the second half of trade on Wednesday, dragged down by expectations of rising production in the coming months.
The market had earlier been up supported by a weaker ringgit and overnight gains in crude oil. The ringgit, palm's currency of trade, fell to its lowest level in a month against the dollar on Wednesday morning. It was last 0.2 percent down at 4.2960 per dollar, its weakest levels since May 24. A weaker ringgit typically supports palm oil prices by making it cheaper for holders of foreign currencies.
The benchmark palm oil contract for September delivery on the Bursa Malaysia Derivatives Exchange was slightly down 0.1 percent to 2,440 ringgit ($567.97) a tonne at the close of trade. The contract briefly hit 2,464 ringgit a tonne, its highest level in slightly over a week, before falling to an intraday low of 2,428 ringgit, its weakest since June 22.
Traded volumes stood at 55,389 lots of 25 tonnes. "The outlook of rising production caused the market to decline in later trade," said a futures trader from Kuala Lumpur. Production in Malaysia, the world's number two producer of the tropical oil, is seen rising in the second half of the year in line with seasonal trend and as the effects of a crop-damaging El Nino wear off. The most recent official data from the Malaysian Palm Oil Board showed output rose 6.9 percent in May to 1.65 million tonnes versus the previous month.
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