Tuesday, 4 December 2012

VEGOILS-Record stocks drag palm oil futures to new 3-week low

* Futures market technically weak -trader
* Palm oil to revisit low of 2,220 ringgit-technicals
* November exports to rise on stronger Chinese demand -analyst (Updates prices, adds detail) By Anuradha Raghu

KUALA LUMPUR, Dec 4 (Reuters) - Malaysian palm oil futures fell to its lowest in more than three weeks on Tuesday as investors fret over the prospects of another month of record stocks in the world's No.2 producer.

Forward months were trading at a 3 percent discount to the benchmark February futures contract, signalling oversupply and keeping investors on edge although seasonally slowing output and Chinese demand should curb the stock build.

Record high stocks in Indonesia and Malaysia will see palm oil futures post their worst annual performance since the financial crisis in 2008. Palm oil prices have lost nearly 28 percent so far this year also on the deepening euro zone debt crisis affecting global economic growth.

"There is plentiful stock around -- that's the reason why the market is still technically weak. The local front is bearish," said a trader with a foreign commodities brokerage.

"Exports are holding quite well, the demand is still strong.

But unless you see a draw down in inventory, the market will be under pressure," he added.

The benchmark February contract on the Bursa Malaysia Derivatives Exchange fell as much as 2,289 ringgit per tonne, the lowest since Nov. 12, before settling at 2,294 ringgit ($754) per tonne by the midday break.

Total traded volumes stood at 16,998 lots of 25 tonnes each, much higher than the usual 12,500 lots.

Technicals showed that palm oil would revisit its Nov. 12 low of 2,220 ringgit per tonne, said Reuters market analyst Wang Tao. [ID:nL4N09E0Q8] Malaysian crude palm oil exports are expected to rise in the next few weeks thanks to stronger demand from China ahead of Lunar New Year celebrations in February, and stricter import rules next year.

"We have assumed crude palm oil exports to increase by 5 percent to 1.85 million tonnes in November as Chinese traders are expected to stock up," Kenanga Investment Bank analyst Alan Lim said in a note to clients.

Kenanga expects inventory levels to "remain close to the very high level of 2.5 million tonnes" and keep crude palm oil prices below 2,500 ringgit in the near term.

Weak manufacturing data from the United States renewed concerns of slowing demand from the world's biggest oil consumer, offsetting optimistic factory data issued by China a day earlier.

Brent futures slipped below $111 per barrel on Tuesday but supply worries stemming from simmering tensions in the Middle East and worsening unrest in Syria helped cushion prices. [O/R] In palm oil's competing markets, U.S. soyoil for December delivery was almost flat in Asian trade. The most active May 2013 soybean oil contract on the Dalian Commodity Exchange fell 0.2 percent.