Tuesday, December 20, 2011

VEGOILS-Global economic fears, slow exports drag on palm oil

KUALA LUMPUR (Dec 20): Malaysian crude palm oil futures dropped on Tuesday on slowing exports in December and nagging concerns over the deepening euro zone debt crisis that may curb global economic growth and commodity demand.

Palm oil is set to extend its 21 percent decline in 2011 after European finance ministers failed on Monday to boost resources at the International Monetary Fund by a targeted 200 billion euros, stirring fears that the funds will not be enough to contain the crisis.

entiment was still quite fragile in Asian financial markets that managed to claw back a little from the heavy losses triggered the previous day after the death of North Korea leader Kim Jong-il raised concerns of regional instability.

In palm oil markets, the losses were muted as some traders were betting on tighter supply in the months to come as heavy rains disrupt harvesting. Traders also focused on hot weather in South America curbing the soy crop that is crushed into competing soyoil. "

External factors are in play. It is still a range play for palm oil at 3,005 ringgit to 3,020 ringgit with no direction," said a trader with a local commodities brokerage. "There is still a conflict of uncertainty over demand versus heavy rain hitting palm oil output."

By midday, benchmark March palm oil futures <0#FCPO:> on the Bursa Malaysia Derivatives Exchange fell 0.5 percent to 3,005 ringgit ($940) per tonne. Traded volumes stood at 3,572 lots of 25 tonnes each, compared with the usual 12,500 lots as some investors were closing out positions ahead of the year-end.

Malaysia's weather office has warned of heavy rains in key oil palm growing state of Johor that accounts for a fifth of national output. Production is already coming down thanks in part to seasonally weaker yields and the market expects output to fall more than 18 percent this month.

But exports from Malaysia are also falling as top buyers slow orders before the year end, giving some breathing space to palm oil stocks that have started to tighten a little.

Cargo surveyor Intertek Testing Services reported a 10.1 percent drop in exports to 933,553 tonnes in Dec. 1-20 compared to the same period a month ago thanks to a decline in orders from mainly India.

Brent crude futures rose above $104 on Tuesday, buoyed by the risk of supply being disrupted from Central Asian oil producer Kazakhstan, even as sanctions-hit Iran struggles to maintain its production and Libyan output is delayed.

U.S. soyoil for January delivery climbed 0.6 percent in Asian trade despite scattered showers in Brazil and Argentina that will do little to break the dry spell affecting soy crops.

The most active Sept 2012 soyoil contract on China's Dalian commodity exchange slipped in the wake of palm oil's fall. "The CBOT, Dalian soybean markets are picking up due to the weather conditions in south America and southeast Asia," said Huang Zhi Qiang, an analyst with Shanghai-based Guotai Junan Futures. The (prospects of) rebound is, however, limited as the global economic climate is still gloomy on the back of slowing growth in Europe and the US," the analyst added.

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