KUALA LUMPUR: Malaysian palm oil futures slipped on Tuesday on concerns of slower demand, although prospects of erratic weather hurting production limited losses.
Traders shifted their focus from the euro zone debt crisis to prospects of weaker demand as refined palm oil products narrowed their discount to South American soyoil to $33 per tonne, the lowest in six months.
The tightening discount comes as favourable weather in South America raised prospects of bumper soybean crop and La Nina-driven monsoon rains stir concerns of weaker yields and a supply squeeze.
"There is no real impetus for the market to move higher. There are concerns over the demand trend with palm oil drastically reducing its discount to Argentine soyoil," said a trader with a foreign commodities brokerage.
"The market is not really falling either and that is because people do not want to caught with their pants down if La Nina becomes really bad and destroys output," he added.
By midday, benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange dropped 0.3 percent to 3,060 ringgit ($960) per tonne. Prices fell as low as 3,054, just a whisker away from a two-week low hit on Friday.
Overall traded volumes stood at 8,340 lots of 25 tonnes each, much lower than the usual 12,500 lots as trading was thin after a long weekend holiday.
Traders expect trading to be thin this week as the industry attends the Indonesian Palm Oil Conference and Price Outlook 2012 on the island of Bali. Industry analysts, including Dorab Mistry and James Fry, present their views on Friday.
"The market is waiting to see if these analysts will continue to keep a bullish outlook for the palm oil market," said another trader in Kuala Lumpur.
"If they are bullish we could see some volatility in the markets due to the thin volumes," he added.
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Some traders in the market said Malaysia's November palm oil production may fall by 15-18 percent on heavy monsoon rains and a seasonal decline in yields. They forecast palm oil prices to surge above 3,200 ringgit.
The Malaysia Meteorological Department, however, has not issued any heavy rain warnings so far for this week, suggesting a lull in a weather pattern that might otherwise reduce harvesting rounds in oil palm estates and trigger floods.
Exports have started to come off a little, cargo surveyor data showed last week, and any further declines may provide relief to tightening stocks.
Cargo surveyor Intertek Testing Services and Societe Generale de Surveillance will issue November exports data on Wednesday.
Brent fell below $109 on Tuesday after posting its largest gains in a month in the previous session as investors took profits and watched keenly to see how Europe would tackle its debt crisis at a meeting later in the day.
US soyoil for December delivery slipped 0.2 percent in Asian trade as rainstorms over the weekend in Argentina's farming region boosted soil moisture, setting the stage for bumper soy crops.
China's most active May 2012 soybean oil contract was also slightly higher.
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