Malaysian palm oil drops

Malaysian palm oil futures fell more than 1 percent on Tuesday evening, erasing most of the previous session's sharp gains, as falls in crude oil prices and expectations of higher inventories of the vegetable oil in December weighed on the market. The benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange was down 1.3 percent at 2,015 ringgit ($483.91) a tonne at the close of trade, after declining as much as 2 percent to 2,001 ringgit earlier in the session. The declines were its sharpest daily levels in a week.
On Monday, palm oil rose 2.2 percent to its highest level since Dec. 3 as official data showed falling output for the first time in five months. Trading volumes stood at 33,312 lots of 25 tonnes each at the end of the trading day on Tuesday. "Crude oil weakness is pressuring market, and there is bearish sentiment over expectations that stockpiles are likely to rise in December," said a Kuala Lumpur-based futures trader.
Data from the Malaysian Palm Oil Board on Monday showed that inventory levels in November rose 10.5 percent from October to 3 million tonnes, while production in November slid 6.09 percent from the previous month to 1.85 million tonnes. Exports fell 12.9 percent to 1.375 million tonnes. Traders said declines in exports could continue to outpace falls in production in December, leading to an increase in stockpiles.
Meanwhile, crude oil fell nearly 3 percent on Monday over concerns about growth in demand, erasing some of the gains made last week on an OPEC-led decision to cut output. Oil prices edged higher on Tuesday after Libya's National Oil Company declared force majeure on exports from one of its oilfields, but overall sentiment remained weak amid worries over global stock markets and doubts that planned supply cuts led by OPEC are enough to rein in oversupply.
Palm oil is impacted by movements in crude oil prices, as the vegetable oil is used as feedstock to make biodiesel. In other related oils, the Chicago January soyabean oil contract was down 0.3 percent, while the January soyabean oil contract on the Dalian Commodity Exchange fell 2.2 percent. Meanwhile, the Dalian January palm oil contract declined 1.6 percent.