Malaysian crude palm oil futures fell to more than a three-week low on Monday as investor concerns over the euro zone debt crisis and higher-than-expected edible oil supplies weighed on the market. Rating agency S&P on Friday cut nine of the euro zone's 17 countries, including top-notch France and Austria, and said it would decide shortly whether to downgrade the eurozone's bailout fund.
Further downgrades could deepen the two-year old debt crisis in Europe and further weigh on palm oil futures that lost 1.5 percent so far this year. Investors were still pricing in US Department of Agriculture (USDA) and Malaysian Palm Oil Board (MPOB) reports last week that pointed to higher global soyoil and palm oil supplies.
"All the numbers have been on the bearish side, from the USDA to MPOB," said a trader with a foreign commodities brokerage in Malaysia. Benchmark April palm oil futures on the Bursa Malaysia Derivatives Exchange fell 0.7 percent to close at 3,126 ringgit ($996) per tonne. Prices earlier dropped to 3,099 ringgit, a level last seen on December 22. Traded volumes stood at lots of 28,163 lots of 25 tonnes each, slightly higher than the usual 25,000 lots.
Palm oil futures will fall to 3,108 ringgit per tonne based on technical analysis, Reuters market analyst Wang Tao said. The Malaysian weather office did not issue any heavy rain warnings but the market is keeping a close watch as floods could complicate the delivery of palm oil to refineries and ports in the world's No 2 producer.
Demand appears to be slowing as China, Europe and India cut back on orders. Malaysia's palm oil exports posted an 11 percent drop for the first 15 days in January, said cargo surveyors Intertek Testing Services and Societe Generale de Surveillance. But some traders said the pace of exports was still strong, compared to the first 10 days of the month.
"Export was better the last 5 days - it's the last minute import for China before they close one week for the Lunar New Year, but the pace is slower compared to last year," said a dealer with a foreign commodities brokerage in Kuala Lumpur. Brent crude rose above $111 on Monday on worries over supply disruptions after Iran warned Gulf Arab neighbours of consequences if they raised oil output to replace Iranian barrels facing international sanctions.
The S&P ratings cut that threatened to derail the progress in resolving the Europe debt crisis also weighed on other vegetable oil markets. The US soyoil contract for March delivery tumbled 2.3 percent while the most active September 2012 soyoil contract on China's Dalian commodity exchange lost 1.5 percent.