Palm oil hits lowest since Oct after US credit downgrade

KUALA LUMPUR: Malaysian palm oil futures dropped on Monday to its lowest in more than nine months, as investors fretted over global economic growth and the outlook for commodity demand after the United States lost its top AAA credit rating.

Palm oil fell below the key 3,000 ringgit level with losses coming mostly from broad-based commodity declines.

Asian shares also slid and the dollar touched a record low versus the Swiss franc, as global policymakers' pledge to take whatever actions needed to steady financial markets did little to pacify nervous investors.

"Investors are cutting back some positions but in palm oil the declines are not so pronounced as it is the cheapest vegetable oil and consumers will fall back on this," said a trader with a foreign commodities brokerage.

The benchmark October contract on the Bursa Malaysia Derivatives Exchange fell as much as 1.9 percent to 2,994 ringgit ($993.53) per tonne -- lowest since late October.

Traded volumes stood at 38,986 lots at 25 tonnes each, up from the usual 25,000 lots.

Reuters analyst Wang Tao said a bearish target at 2,950 ringgit per tonne has been established for Malaysian palm oil based on its wave pattern and a channel technique.

Bursa Malaysia raised margin requirements for palm oil trading, dealers said on Monday, in what could be a pre-emptive move against a possible rout in Asian markets in light of the Western debt crisis and ahead of long holidays in September.

"The exchange could be raising its margin requirements ahead of the Eid al-Fitr festival in early September to deter excessive market swings and risk taking," said a trader with a local commodities brokerage.

Palm oil is still holding up better than other commodities thanks to robust demand.

Although traders are expecting cargo surveyors this week to report a decline in Aug. 1-10 palm oil exports, the fall will be limited as big buyers may take advantage of the lower prices to lock in orders.

Also, industry regulator Malaysian Palm Oil Board is likely to show palm oil stocks easing from an 18-month high in July, as demand last month outpaced weaker production.

But its top official said palm oil production has hit its highest for this year in July and will start a downtrend expected to last until December.

US soybeans slid to a one-month low, weighing on other vegetable oil markets. The falls were muted as investors eyed a key government report later this week that will shed light on US corn and soybean crops after heat stress last month.

US soyoil for August delivery dropped 0.9 percent in Asian trade. The most active May 2012 soyoil contract on China's Dalian exchange ended 0.1 percent.

Copyright Reuters, 2011