Malaysian crude palm oil futures fell more than 2 percent on Wednesday after a strong New Year rally driven partly by weather concerns lost some steam because of a stronger dollar. But traders said steep losses were unlikely as vegetable oil markets were eyeing heavy rains that can slow oil palm harvesting in Southeast Asia and drier weather stalling soyabean plantings in Argentina.
The dollar held firm in Asian trade after data showed some signs of strength in the US economy. A stronger greenback makes it expensive for overseas consumers to buy commodities like palm oil that are priced in that currency. Commodities may generally see some further losses as investors seek to rebalance their portfolios after the asset class made the strongest gains last year.
"But for palm oil, profit-taking may only be a one-day affair. Investors cannot afford to ignore the weather-market play going on," said a trader with a foreign commodities brokerage. The benchmark March 2011 crude palm oil contract on Bursa Malaysia Derivatives lost 80 ringgit to trade at 3,808 ringgit ($1,242.617) per tonne after hitting a 33-month high the previous day.
Traded volumes rose to 22,852 lots of 25 tonnes each, compared to the usual 15,000 lots. Other traders expect palm oil to resume its climb in the coming days as the US dollar weakens and demand for cooking oil grows. "Most refiners are forced to buy as the bull is still winning the game by holding this market. Downhill is temporary as long as US dollar weakens," said another Malaysian trader.
Signalling a supply squeeze, industry regulator Malaysian Palm Oil Board will order firms to bring forward deliveries meant for next month to boost cooking oil supplies by 20 percent to 84,000 tonnes in January, local media reported. Oil's second-day fall also weighed on sentiment across the vegetable oil complex. US soyao 200l for January delivery edged 0.4 percent lower in Asian trade hours. The most active September 2011 soyaoil on China's Dalian Commodity Exchange dropped 0.7 percent.