SINGAPORE: Malaysian palm oil futures extended losses on Tuesday, as investors feared that the euro zone debt woes could hurt global growth, although losses were limited by a healthy demand outlook for the edible oil on the back of lower soybean supply.
Political uncertainty and disappointing data in Europe raised fears that the euro zone could struggle to push through austerity measures, dampening investor sentiment and cutting palm oil gains this year to 9 percent from a year-high 14 percent.
"I think the main reason the market's down is the Europe economic situation. The Dow Jones Indices also dropped about 100 points, and that should affect the overall sentiment," said Alan Lim, research analyst with Malaysia's Kenanga Investment Bank.
Benchmark July palm oil futures on the Bursa Malaysia Derivatives Exchange dropped 0.4 percent to close at 3,463 ringgit ($1,130) per tonne.
Traded volumes stood at 17,378 lots of 25 tonnes each, much lower than the usual 25,000 lots, as most market players held back ahead of the Malaysian export numbers for April 1-25 due on Wednesday.
Malaysian palm oil exports for April 1-20 fell 5.3 percent from a month earlier, a marked improvement from a 13.5 percent drop in the first half of this month due in part to stronger demand from India.
Analysts also expect to see stronger exports on the back of recovering palm oil demand from the biodiesel industry in Europe.
"Exports should improve slightly from the negative 5 percent because the biodiesel industry in Europe may use more palm oil. Palm oil tends to solidify during winter and now that winter has ended, demand should switch back to palm oil because it is cheaper," said Lim.
On top of that, Argentina cut its official estimate for this year's soy crop last Thursday, boosting palm oil's demand potential as a smaller soy crop for crushing into soyoil will shift demand to palm oil.
On the technicals front, Reuters market analyst Wang Tao posted a bearish view, saying palm oil will fall to the April 19 low of 3,439 ringgit.
Brent crude was subdued below $119 on Tuesday due to weak demand amid the delicate state of the euro zone economy.
In other vegetable oil markets, the most active US soyoil contract for May gained 0.5 percent in Asian trade while the most active Dalian soyoil September contract lost 0.8 percent.
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