Palm oil drops on global economy concerns

KUALA LUMPUR: Malaysian palm oil futures dropped on Monday, sliding along with other commodities as the dollar jumped on Japanese intervention to weaken the yen, and on continuing caution over the state of the global economy.

The dollar jumped to a three-month high against the yen and was up 1.2 percent against a basket of currencies after the Japanese move.

European policy makers laid out a basic framework to tackle the region's debt crisis last week, but there remains scepticism over the viability of plans to boost the bailout fund, recapitalise banks and impose losses on investors holding Greek debt.

Markets were also treading cautiously ahead of this week's Federal Reserve monetary policy meeting and US economic data including jobs that will give insight to the state of the world's No.1 economy.

"Palm oil investors are taking profits on external developments and there appears to be a technical resistance to hitting above the 3,000 ringgit level," said a trader with a foreign commodities brokerage.

Benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange settled down 1.1 percent to 2,938 ringgit ($959.034). Last week prices hit 3,007, a level not seen since Sept. 22.

Traded volumes stood at 23,374 lots of 25 tonnes each, a shade lower than the usual 25,000 lots.

Exports are still strong although traders say orders could taper off in November as Europe, China and India buy less palm oil due to the colder months and as the Asian festive season comes to an end.

Cargo surveyor Intertek Testing Services reported an 8.5 percent rise to 1.65 million tonnes in October from a month ago. Another surveyor, Societe Generale de Surveillance, saw an 11.9 percent jump in the same period.

But stocks are still expected to rise in October on higher production, some traders said.

"Stocks are expected to go up, if it doesn't that would indeed be bullish. But with this run of good exports the quantum of increase would be lower," said a trader in Malaysia.

Oil prices eased on Monday, with Brent slipping below $110, as the dollar rose against the yen following the Japanese intervention.

Lower crude oil and fragile global economic sentiment weighed on other vegetable oil markets. US soyoil for December delivery dropped 1.3 percent in Asian trade.

China's most active May 2012 soybean oil contract tumbled 2.1 percent.

"Imports (of vegetable oils) should stay more or less the same as the Chinese are not looking to add on to their stockpiles," said Zhang Ruming, research manager at Liangyun Futures.

"The euro zone deal has helped stabilise the market, but its effects will wear off as it's still not a long-term solution," he added.

Copyright Reuters, 2011