Palm oil dips to one-week low on soy outlook

JAKARTA: Malaysian palm oil futures touched a one-week low on Wednesday, as a bigger-than-expected soybean crop outlook in the United States weighed on prices, with falling crude also hitting sentiment.

Benchmark November palm oil on the Bursa Malaysia Derivatives Exchange dipped 0.6 percent to trade at 3,000 Malaysian ringgit ($981) per tonne. Earlier, prices hit a low at 2,996, the weakest trough since September 7.

Traded volumes for the November contract stood at 4,991 lots of 25 tonnes each compared with 9,867 lots on Tuesday.

Benchmark prices have eased about 1.6 percent this week, due in part to a better-than-expected production outlook for the US soy crop.

Earlier this week, the US Department of Agriculture unexpectedly raised its US crop production outlook by 1 percent in a monthly report, despite forecasts for a smaller crop due to hot, dry weather this summer.

"The USDA report set the negative tone in the market," said a dealer in Kuala Lumpur. "Soy was helping palm to hold pretty well, but as we all know, the USDA report was rather bearish."

US soyoil for October delivery fell, while the most active May 2012 soybean oil contract on China's Dalian Exchange hit a near-three week low.

Oil fell as the dollar strengthened and investors saw little upside from declining inventories in an environment where the euro zone debacle is overshadowing tightening supply.

Malaysian palm oil is biased to fall to 2,984 ringgit per tonne, as it could have completed a rebound that started at the Aug. 9 low of 2,917 ringgit.

Palm investors are also concerned about a possible build up in stocks, at a time when exports have slipped.

Against this backdrop, Indonesia, the top palm oil producer, is set to introduce changes to its export tax boundaries.

"In the next couple of months, a key focus will be on the Indonesian export tax," Ker Chung Yang, an analyst at Phillip Futures in Singapore, said.

"People may opt to wait on the sidelines, because they would like to see the impact first before coming back in -- especially for speculators."

Copyright Reuters, 2011