KUALA LUMPUR: Malaysian palm oil futures dropped sharply on Thursday as investors' avoided risky assets on concerns that a key European leaders' summit may not reach a consensus on the debt crisis in the region.
Palm oil prices have see-sawed for this week on conflicting reports over European governments reaching a deal to contain the crisis and recapitalise banks in the region.
Commodity markets came under pressure on fears of economic growth slowing after French President Nicholas Sarkozy said plans to resolve the crisis stalled with policymakers at odds over how to increase the bailout fund.
"Palm oil's fundamentals are slightly bullish but that has been stamped out by the greater macro bear called the euro zone," said a trader with a foreign commodities brokerage.
"Exports are still doing well but the question is what happens when the festival season ends and stocks continue to rise and we are left with the euro zone mess," the trader added.
By the midday break, benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange tumbled 1.8 percent to 2,840 ringgit ($914). The contract earlier fell to an intra-day low of 2,822 ringgit, coming close to a one-week low hit on Tuesday.
Traded volumes stood at 9,733 lots of 25 tonnes each, compared to the usual 12,500 lots as more market players stayed away.
The palm oil market has been trading in a contango -- where the third month or the most active month is at a discount to later contracts -- due to expectations of production continuing to rise in the short term.
The market on Thursday came under pressure after cargo surveyor Intertek Testing Services reported Malaysian palm oil exports for the first 20 days of October rose 5.5 percent to 1.03 million tonnes from a month ago.
"The market went up yesterday on the higher exports and it was expected but it is clearly not enough when production could be 10 percent higher," said another trader in Kuala Lumpur.
October exports have largely been driven by higher crude palm oil shipments out of Malaysia after Indonesia kept export taxes on its cargoes virtually unchanged, triggering a shift.
But Malaysian crude palm oil has lost that discount to the Indonesian grade, potentially slowing down orders in the coming days.
US soyoil for December delivery rose 0.7 percent in Asian trade on seasonal harvest pressure and mounting concerns over the euro zone crisis stalling economic growth and commodity demand.
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