KUALA LUMPUR: Malaysian crude palm oil futures dropped on Tuesday as moderating exports hurt sentiment, while a 6 percent rally last week gave traders an excuse to book profits as well.
Palm oil has lost 16.5 percent so far this year and is set to post its first annual decline since 2008 as the euro zone debt crisis continues to fester and raise fears of slowing global economic growth.
"The market was overbought last week and now we have slowing exports and an unresolved euro zone debt crisis to consider," said a trader with a foreign commodities brokerage in the Malaysian capital.
By the midday break, benchmark March palm oil futures on the Bursa Malaysia Derivatives Exchange fell 0.6 percent to 3,150 ringgit ($1,000) per tonne.
The contract last week touched a high of 3,178 ringgit, a level unseen since Nov. 23.
Traded volumes for palm oil futures were thin after a long Christmas weekend and ahead of the new year holidays with 6,160 lots of 25 tonnes each, compared to the usual 12,500 lots.
Dealers were also eyeing weather developments in Malaysia, the No.2 producer of the vegetable oil where regularly issued data may show indications of heavy rains affecting harvesting and production.
The Malaysian Meteorological Department warned ongoing intermittent and heavy rains could trigger floods in low-lying areas in key oil palm growing states of Pahang, Johor, Sabah and Sarawak, accounting for almost 75 percent national palm oil output.
But local media quoted the country's National Security Council Director as saying the impact of the heavy rains and floods was still manageable and not severe like early this year.
Planters reported of minimal disruption in deliveries of crude palm oil to refineries and ports.
"We have heard of some floods but it's not impacting our plantations. Any delay at this point is still manageable," said an official with a plantation house in Malaysia with holdings in Johor and Sabah states.
Palm oil production in Malaysia is also in the seasonally low yield phase and traders expect stock levels to come down although the pace of the decline depends on the export trend.
Exports have moderated after exceptionally strong growth in July and August, potentially easing any tightness in stocks.
Cargo surveyor Intertek Testing Services reported over the weekend that Malaysian exports fell 11.6 percent to 1.18 million tonnes in Dec. 1-25 compared to the same period a month ago as China and India wind up shipments for this year.
Brent crude rose slightly to trade above $108 on Tuesday, supported by supply disruptions in Syria and Iranian naval exercises in a key shipping lane, while improved US home sales data also supported prices.
US soyoil markets were shut in electronic trade. The most active Sept 2012 soyoil contract on China's Dalian commodity exchange dropped 0.3 percent.
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