Malaysian palm oil dropped to a seven-month low on Friday as expectations that a higher output cycle will lift stocks offset broad gains in agriculture markets. Palm oil is on course for a drop of more than 7.6 percent in June, its worst monthly performance since February on sluggish commodity markets as well as high stocks outpacing export demand.
"We are looking for better export data next week to give some support but it will not be much," said a trader with a foreign commodities brokerage. "However, the market has factored in all these bearish factors and has fallen 300 ringgit over the past two week. There should be some retracement." By midday, the benchmark September crude palm oil contract on the Bursa Malaysia Derivatives Exchange fell 0.1 percent to 3,132 ringgit ($1,033) a tonne after going as low as 3,123 ringgit - a level not seen since November 23.
Overall traded volumes stood at 8,207 lots at 25 tonnes each, down from the usual 12,500 lots that change hands. Palm oil production is likely to easily push Malaysian stocks to 2 million tonnes this month, traders say. Indonesia raising its export tax for next month has spurred some palm oil firms to rush out their cargoes before the end of June to Malaysia, potentially swelling stocks, refiners say.
Higher stocks have pressured prices and could lure in buyers from Muslim countries from Pakistan to Iran who are looking to stock up ahead of the Ramazan fasting observance in August. Exports have been reflecting this trend but may not be enough to slow Malaysia's stock growth. Cargo surveyors will report June 1-25 palm oil exports from Malaysia over the weekend and on Monday.
Brent crude rebounded to $108 from a four-month low on Friday as traders gauged how much supply would reach the market from an IEA-co-ordinated release of emergency oil stockpiles. Higher crude oil lifted some vegetable oil markets that were also getting support following Greece's deal with international lenders for a new austerity plan. US soyoil for July delivery climbed nearly 0.7 percent in Asian trade, while the most active January 2012 soybean oil contract on the Dalian Commodity Exchange barely moved.