Short-selling drives palm oil futures to one-year low

KUALA LUMPUR: Malaysian palm oil fell on Wednesday to its lowest level in a year on short-selling although traders said prices could bounce back on hopes that Europe's debt woes may be contained and a global economic recession avoided.

Traders said a major Singapore-based palm oil firm with plantations and processors in Asia were largely behind the downtrend, selling aggressively to cover its short positions.

Prices fell below 2,800 ringgit.

"It has worked in favour for that big short seller. With short selling and the euro zone debt crisis hanging over our heads, people are shorting," said a trader with a foreign brokerage in Kuala Lumpur.

"But the market bounced up a little, so its not over."

The benchmark December palm oil futures on the Bursa Malaysia Derivatives Exchange fell 1.1 percent to 2,780 ringgit ($869.157), the lowest since Oct. 8 last year. The contract settled 0.9 percent lower at 2,785 ringgit.

Overall traded volumes stood at 28,757 lots of 25 tonnes each from the usual 25,000 lots.

Reuters technicals analyst Wang Tao said a bearish target at 2,718 ringgit per tonne has been lowered to 2,690 ringgit for palm oil as it is riding on a fierce wave (3).

Palm oil prices, which have lost more than a quarter so far this year, have also come under further pressure on expectations of high stocks and concerns that demand will lose steam after India ends its festival season this month.

But Wednesday's brief sell-off could attract some last minute orders from India ahead of the Hindu festival of Diwali in late October.

"The market is going to bounce back on some bargain hunting and some overseas buyers snapping up physical cargoes," said another trader. "There is one firm going against the market by trying to short it and that is not going to work for long."

European shares and commodity prices bounced on Wednesday after finance ministers agreed to safeguard banks from the spreading sovereign debt crisis, though the euro hovered near a nine-month low against the dollar.

Brent crude rose above $101 on Wednesday, snapping a three day losing streak, and supporting other vegetable oil prices.

US soyoil for October delivery climbed 1.3 percent in Asian trade, partly lifted by expectations of strong China demand for grains.

China's vegetable oil markets were shut for a week for the National day holiday.

Copyright Reuters, 2011