VEGOILS-Palm falls to near 1-week low as profit-taking continues

Wed Mar 12, 2014 4:07pm IST

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(Adds milestone, updates prices)
    * Market heads for correction after rising above 2,900 ringgit - trader
    * Palm oil to retrace to 2,764 ringgit - technicals
    * High price level raises concerns of weaker food and fuel demand - analyst

    By Anuradha Raghu
    KUALA LUMPUR, March 12 (Reuters) - Malaysian palm oil futures stretched
losses into a second day on Wednesday, falling to a one-week low as
profit-taking continued to weigh, with some investors worried that higher prices
of palm oil could see key consumers switching to rival edible oils. 
    Benchmark prices surged to an 18-month high of 2,916 ringgit per tonne on
Tuesday after industry data showed that end-stocks in Malaysia, the world's
second-largest grower, dropped to an eight-month low of 1.66 million tonnes. But
prices later gave up gains as traders booked profits.
    Market players widely expect inventories shrink further as dry weather in
the region continues to hinder palm oil production. Malaysia's total output in
February was only 1.28 million tonnes, a 14 percent drop from a month ago. 
    "Another profit-taking day. There's also retracement and correction in a
heavily overbought market," said a trader with a foreign commodities brokerage
in Kuala Lumpur. 
    "Everyone knows the weather is bad, the yields are bad, and end-stocks are
coming down. That's why the market rallied all the way from 2,300 ringgit levels
... and now it's making a correction after hitting 2,900 ringgit," the trader
added.    
    The benchmark May contract on the Bursa Malaysia Derivatives
Exchange had inched down 1.8 percent to 2,821 ringgit ($858) per tonne by
Wednesday's close. Prices had earlier dipped to 2,808 ringgit, their lowest
since March 6. 
    Total traded volume stood at 71,678 lots of 25 tonnes, more than double the
average 35,000 lots.    
    Technicals show that Malaysian palm oil may fall to 2,764 ringgit per tonne,
as indicated by a Fibonacci retracement analysis, Reuters market analyst Wang
Tao said. 
    
    
    
     Palm prices could rise above 3,500 ringgit - a level last touched in April
2012 - if the crop-damaging El Nino weather patterns return to plague oil palm
plantations, leading analysts earlier warned. 
     The spike in prices could cause key consumers to switch to competing edible
oils such a soy, sunflower and canola oils for food and fuel use.
     "The high price level has sparked off concerns on possible weaker demand
for palm oil in terms of food and biodiesel uses, as it renders palm oil's price
competitiveness in relative to other vegetable oils," said Phillip Futures
analyst Tan Chee Tat in a note on Wednesday.
    In other markets, Brent futures fell towards $108 a barrel on Wednesday as
demand growth concerns at the world's two biggest oil consumers overshadowed
fears of supply disruption with geopolitical tensions over Ukraine worsening.
 
    In other competing vegetable oil markets, the U.S. soyoil contract for May
 slumped 1.3 percent in late Asian trade, while the most active September
soybean oil contract on the Dalian Commodities Exchange was nearly
flat.
 
  Palm, soy and crude oil prices at 1024 GMT
                                                                                                          
  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      MAR4    2876   -36.00    2871    2950      23
  MY PALM OIL      APR4    2840   -52.00    2833    2886    1995
  MY PALM OIL      MAY4    2821   -51.00    2808    2865   34793
  CHINA PALM OLEIN SEP4    6438   -10.00    6382    6482  797856
  CHINA SOYOIL     SEP4    7160    +2.00    7128    7190  730724
  CBOT SOY OIL     MAY4   43.16    -0.59   43.13   43.71   11496
  NYMEX CRUDE      APR4   98.84    -1.19   98.52   99.60   26796
                                                                                                          
  Palm oil prices in Malaysian ringgit per tonne
  CBOT soy oil in U.S. cents per pound
  Dalian soy oil and RBD palm olein in Chinese yuan per tonne
  Crude in U.S. dollars per barrel
  
 ($1 = 3.287 Malaysian ringgit)
 ($1 = 6.1450 Chinese yuan)

 (Editing by Anand Basu and Anupama Dwivedi)