SINGAPORE: Malaysian crude palm oil futures dropped to the lowest in five weeks on Tuesday, extending losses from the previous day as forecast for rains in the US Midwest improved production outlooks for soybeans.
An improved production outlook for soybeans could see a higher supply of competing soybean oil, narrowing its premium to palm oil and attracting some demand away from the tropical oil.
A gloomy global economic outlook also weighed on palm oil and other commodity markets with a surge in Spain's
On top of that, a surge in Spain's borrowing costs triggering alarms that the country could seek a costly bailout also piled pressure on palm oil prices.
"Prices are reflecting macroeconomic risk aversion but technically palm prices are terribly oversold," said a trader with a local commodities brokerage in Malaysia.
"Prices have again became attractive and exports should soon show signs of recovery. Consumers will soon bargain hunt as prices are relatively cheap."
By the midday break, the benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange were trading 1.3 percent lower at 2,951 ringgit ($930) per tonne after going as low as 2,924 ringgit, the lowest since June 19.
Traded volume stood at 16,369 lots of 25 tonnes each, higher than the usual 12,500 lots.
On the technicals front, palm oil faces a support at 2,919 ringgit, a break below which will open the way to 2,838 ringgit, said Reuters market analyst Wang Tao.
Weather updates on Monday forecast some rains for soybean crops in US Midwest this week and helped offset a weekly crop condition report from the US Department of Agriculture that downgraded soy crop ratings.
Investor sentiment also weakened as the euro was not far from a two-year low against the dollar, undermined by Moody's Investors Service changing its ratings outlook to negative for Aaa-rated Germany, the Netherlands and Luxembourg amid Europe's ongoing debt crisis.
Palm oil traders will be looking out for Malaysia's palm oil export data for the July 1-25 period to be released on Wednesday after shipments fell 23 percent over the first 20 days of July from a month ago.
The market is also watching for signs of El Nino returning to Southeast Asia as the hot and dry weather could hurt palm oil output for top producers Indonesia and Malaysia.
In other markets, Brent crude remained steady above $103 per barrel on Tuesday as China, the world's top energy consumer, showed signs of improvement in its economy though fears of a Spanish bailout curbed oil price gains.
Declines in other vegetable oil markets showed similar investors concerns over wetter weather in the US and the euro zone debt crisis.
By 0452 GMT, the most active US soyoil for December delivery was down 2.2 percent and the most active January 2013 soyoil contract on the Dalian Commodity Exchange had lost 2.4 percent.
?Ug;`? ?? Reuters, 2012
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