Tuesday, December 6, 2011

VEGOILS-Palm oil drops on S&P's possible euro zone downgrade

KUALA LUMPUR (Dec 6): Malaysian palm oil futures dropped on Tuesday as the euro zone debt crisis deepened with rating agency Standard & Poor's warning it may cut the credit ratings of the region that is threatening to slow the world's economic growth.

Prices of the edible oil have fallen 18.6 percent so far this year, thanks to the brewing debt crises in the U.S. and Europe, although concerns over heavier than usual rains curbing output could limit losses.

"There is really no impetus for the market to move higher. The market is keeping its support level at 3,080 ringgit per tonne," said a trader with a foreign commodity brokerage.

"The declines have not been too big as market players are waiting to see what the euro zone leaders' summit this week will yield," he added.

The benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange settled 1.2 percent lower at 3,085 ringgit ($980)per tonne. Overall traded volumes stood at 17,804 lots of 25 tonnes each, much lower than the usual 25,000 lots as more investors turned cautious and waited on the sidelines.

The previous day, the market hit a two-week high on reports of flooding in some areas of Malaysia. The Malaysian Meteorological Department issued a heavy rain advisory for the northern states of Kelantan bordering Thailand and Terengganu, warning rains could cause floods in some low-lying areas.

Both these regions account for a small percentage of national production, but the warning shows the monsoon rains are moving closer to the key oil palm growing regions of Pahang and Johor.

"We do anticipate logistics disruptions if the rains continue to worsen and the floods hit the oil palm estates," said a Malaysian planter. "I think some of the market participants are worried about that as the storage tanks are still pretty full. We are in a buyers' market rather than a sellers' market at this time."

Reuters will issue a poll on Malaysia's November palm oil stocks, production and exports later this week ahead of the actual industry data release on Monday.

Traders are talking about a drop of 15 to 18 percent in November production from a month ago, thanks to a seasonal decline in yields and rains disrupting some harvesting. Brent crude fell towards $109 on Tuesday on the intensifying euro zone debt crisis, weighing on prices of other vegetable oils that are increasingly used as feedstock for competing biodiesel.

U.S. soyoil for December delivery dropped 0.5 percent, partly due to propsects of a big South American crop coming in next year. China's most active May 2012 soybean oil contract <0#DBY:> fell 0.5 percent.- Reuters

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