Palm oil dips; expectations of higher production hit sentiment

KUALA LUMPUR: Malaysian palm oil futures dropped in early trade on Tuesday, falling from a near four-month top hit in the previous session, as expectations of a rise in production in the coming months dented sentiment.

The benchmark palm oil contract for October delivery on the Bursa Malaysia Derivatives Exchange was down 0.3 percent to 2,668 ringgit ($623.80) at the midday break.

Traded volumes stood at 17,684 lots of 25 tonnes each at noon.

"The market was earlier up reacting to higher Dalian, but anticipation of higher production, especially due to improvement in production in Sabah, pressured the market," said a Kuala Lumpur-based futures trader, referring to the Dalian Commodity Exchange in China.

"Lower soyoil on the Chicago Board of Trade will also pressure the market," the trader added.

Production gains in the east Malaysian state of Sabah, the country's largest producing region, is seen rebounding the most on a post-El Nino recovery compared with other states.

Traders, however, are unsure about the extent of production gains, as planters say palm trees are still seeing some lingering effects of the 2015 crop-damaging El Nino.

In other related oils, the October soybean oil contract on the Chicago Board of Trade fell 0.1 percent, while the September soybean oil on the Dalian Commodity Exchange was up 1 percent.

The September palm olein contract rose 0.8 percent. Palm oil prices are impacted by related edible oils, as they compete for a share in the global vegetable oils market.

Palm oil faces a strong resistance at 2,697 ringgit per tonne, and it may hover below this level or retrace toward a support at 2,638 ringgit, said Wang Tao, a Reuters market analyst for commodities and energy technicals.