Palm slips on euro zone fears, surprise stock draw may support

KUALA LUMPUR: Malaysian palm oil futures fell for a second day on Thursday as investors shifted to price in concerns that Europe's debt crisis may stall global growth from prospects of tight oilseed supply.

Soaring Italian borrowing costs stoked fears the euro zone's third biggest economy would seek rescue funds that will further compromise the block's finances and heighten the risk of break up of the economic region.

That offset an expected yield cut forecast in US soybean crop although some traders said palm oil could still rebound after the Malaysian Palm Oil Board posted data show a surprise stock draw on the back of high exports.

"The euro zone is grabbing the headlines for now but the palm oil market was shocked by the lower stocks of 2.1 million tonnes when we were expecting a rise to 2.2 million tonnes," said a trader with a foreign commodities brokerage.

By midday, benchmark January palm oil futures on the Bursa Malaysia Derivatives Exchange fell 0.2 percent to 3,028 ringgit ($971 )after going as low as 3,001 ringgit.

Traded volumes stood at 11,166 lots of 25 tonnes each, compared to the usual 12,500 lots on investor caution over the euro zone debt crisis.

Reuters analyst Wang Tao said technicals were negative with a bearish target at 2,960 ringgit per tonne intact for palm oil as suggested by its wave pattern and a rising channel.

Investors are watching weather conditions in Southeast Asia on concerns La Nina rains may further disrupt oil palm harvesting during the year-end monsoon season -- a scenario that could reverse a 20 percent decline in prices this year.

Lower exports in coming weeks could limit any price gains as northern hemisphere countries switch to soyoil that does not solidify in colder temperatures.

Export data is already pointing to declines in orders. Cargo surveyor Intertek Testing Services reported a 5.9 percent drop in Malaysian palm oil exports for the first ten days of November.

Brent crude was steady above $112 a barrel on Thursday, after sharp falls a day earlier, as hopes of resilient oil demand from China partly offset growing concerns over Europe's debt crisis.

But euro zone worries were a bigger factor in the vegetable oil markets.

US soyoil for December delivery dropped 0.5 percent in Asian trade, extending losses despite erratic weather potentially harming the Brazilian soy crop and a cut in US so.

Copyright Reuters, 2011