Palm oil at near two-week low on economic concerns

KUALA LUMPUR: Malaysian palm oil futures fell to their lowest in almost two weeks on Tuesday as investors fretted over the worsening euro zone debt crisis that could put the brakes on economic growth and commodity demand.

In the past few weeks, the palm oil market has been supported by solid export demand in August and prospects of a stock draw in No.2 palm oil producer Malaysia.

"After a few months of strong exports, we expect the buying trend to slow a little. And of course, all eyes are on the debt crisis in Europe and the US as this could slow economic growth," said a trader with a foreign commodities brokerage.

The benchmark November crude palm oil contract dropped as much as 1.3 percent to 2,978 Malaysian ringgit -- a level unseen since Aug. 26. By midday, the contract was trading at 2,994 ringgit per tonne.

Traded volumes were still thin at 8,234 lots at 25 tonnes each versus the usual 12,500 lots as some traders had taken extended leave after the Eid festival last week.

Technicals turned negative with Reuters analyst Wang Tao saying a bearish target at 2,887 ringgit has been established for palm oil as a medium-term downtrend that started from the June 3 high of 3,465 ringgit per tonne remains intact.

Palm oil exports for August dipped by a slight 0.5 percent from a month ago, indicating strong demand. Traders said this could cut into high stocks given lower production last month as estate workers took leave for the Eid holidays marking the end of the fasting month of Ramadan.

September exports are expected to slip further as importers like India and China wait for prices to come under pressure before committing to purchases, traders said.

Brent crude rose towards $111 a barrel on Tuesday, rebounding from sharp falls a day earlier, as expectations for further economic stimulus in the US boosted sentiment.

Vegetable oil markets were still pricing in concerns over a global economic slowdown although worries that hot and dry conditions in the US Midwest could hurt corn and soy yields supported prices to some extent.

US soyoil for September delivery dropped 1.1 percent in Asian trade. The most active May 2012 soy oil on China's Dalian Commodity Exchange lost 1.6 percent.

Copyright Reuters, 2011