Malaysian palm oil tumbles

Malaysian crude palm oil dropped as much as 3.4 percent on Tuesday as a rally in crude oil lost some steam, while prospects of a strong South American soy crop also weighed on sentiment. Traders seized the opportunity to book profits ahead of a key price outlook session on Wednesday at the Bursa Malaysia Palm Oil Conference where top analysts will present their views.
For a selection of related stories, see "The market tends to fall before the price outlook but the decline was amplified by the movements in soy and crude oil," said a trader with a local commodities brokerage. The benchmark May contract on the Bursa Malaysia Derivatives Exchange fell as much as 124 ringgit to 3,571 Malaysian ringgit ($1,178) before settling at 3,584 ringgit. Traded volume stood at 17,621 lots at 25 tonnes versus the usual 15,000 lots.
"The market has been overbought for some time and it's ripe for a correction, but the overall scenario is still bullish," said another trader. Malaysian palm oil and US soybean oil look set to rise about 20 percent by the end of the year, based on technical analyses, Reuters analyst Wang Tao said. Palm oil prices on Tuesday also came under pressure from forecasts of higher Malaysian palm oil production and LMC International Chairman James Fry's comments that palm oil will normalise its discount to competing soyoil from a premium currently.
Brent crude briefly dropped more than $2 to below $113 as Kuwait's oil minister said Opec was in talks to boost production for the first time in more than two years, but oil pared losses on supply worries stemming from the Middle East unrest. Lower crude oil prices diminish the appeal for biodiesel, making it less competitive. Soyoil and rapeseed oil are preferred feedstocks for biofuels due to tax credits and subsidies in Europe and the Americas. Malaysia's government now plans to subsidise palm-oil based biofuels to revive the flagging industry and as crude oil prices continue to remain above $100 a barrel, sources said.
Other vegetable oil markets also fell in Asian trade. US soyoil for March delivery dropped 1 percent as outlook for a better crop in South America weighed and on expectations US Department of Agriculture will raise its forecast of ending stocks for the first time in 11 months. China's most active soybean oil contract for September delivery also followed suit, dropping 1.7 percent.