Malaysian palm oil futures dropped to their lowest in three months on Friday, on expectations of rising production and slow export demand. Benchmark palm oil futures for May delivery on the Bursa Malaysia Derivatives Exchange were down 2.4 percent at 2,859 ringgit ($642.33) a tonne in the evening. Earlier, they hit 2,851 ringgit, the lowest since November 18.
Traded volumes stood at 80,151 lots of 25 tonnes each at the end of the trading day. "Fundamentally production is inching up but exports are uncertain," said a Kuala Lumpur-based futures trader. "The trading band in the short term should be 2,800 ringgit-3,000 ringgit," he said, while adding it was too early to determine whether this was the start of a price-declining phase.
In recent weeks, palm oil prices have reached their highest in more than four years as market supplies are tight on low production levels. Palm's fresh fruit yields are still suffering the effects of a crop-damaging El Nino, but are expected to recover by the second-half of the year, which is weighing on benchmark prices, according to leading industry analysts.
Another trader added high palm oil prices had seen many buyers switch to soyaoil, causing a sharper decline in prices of the tropical oil in the second half of Friday's trade. "Demand will switch to soyaoil in a big way," he forecast. Demand for palm oil in the first-half of February declined from the corresponding period last month, cargo surveyor data showed.
Societe Generale de Surveillance shipment data showed a 3.6 percent fall in exports, while Intertek Testing Services saw a 1.4 percent rise. Palm oil is expected to seek a support at 2,879 ringgit per tonne, and then either hover above this level or bounce towards a resistance at 2,959 ringgit, said Wang Tao, a Reuters market analyst for commodities and energy technicals. In competing vegetable oils, the May soyabean oil contract on the Chicago Board of Trade slipped as much as 1.7 percent, while the May soyabean oil contract on the Dalian Commodity Exchange lost up to 2.1 percent. The May contract for Dalian palm olein fell as much as 3.2 percent.