SINGAPORE: Malaysian palm oil futures dropped to a one-year low on Friday with the market on track for a fifth week of declines in six as expectations of higher production pressured prices.
The Malaysian Palm Oil Association, a group of growers, estimated that palm oil production in the world's second largest producer, rose 6.9 percent to 1.68 million tonnes in July, traders said. This is above a Reuters forecast of 4.9 percent growth.
The benchmark October contract on the Bursa Malaysia Derivatives Exchange closed down 0.8 percent at 2,235 ringgit ($697) per tonne. Traded volume stood at 39,121 lots of 25 tonnes. Earlier in the session, it fell to 2,231 ringgit a tonne, the lowest since Aug. 12 last year.
"Production in July could exceed what has been estimated by the association," said one Kuala Lumpur-based trader. "We think it will be close to double-digit growth and at the same time fresh demand is lacking."
Malaysian palm oil output is likely to steadily rise in the months ahead, traders said
Industry regulator, the Malaysian Palm Oil Board, is due to release official data on end-July palm stocks, production and exports on Monday.
A Reuters survey pegged end-July stocks at a more-than-three-year low of 1.64 million tonnes, although market players warn that a surge in palm output will push up stockpiles in the following months.
Higher production of palm oil will add to global edible oil supplies with output of rival soybeans likely to climb to near-record level in the United States.
Favourable crop weather in the U.S. Midwest has also fuelled expectations that the U.S Department of Agriculture will raise estimates of soybeans in its monthly report next Tuesday.
Palm oil is expected to break a resistance at 2,268 ringgit per tonne and rise more to 2,298 ringgit, following the completion of a five-wave cycle, according to Reuters market analyst Wang Tao.
For a 24-hr palm oil chart analysis: http://graphics.thomsonreuters.com/F/1/20140808105440.jpg
The U.S. soyoil contract for December fell 0.4 percent in late Asian trade, while the most active January soybean oil contract on the Dalian Commodities Exchange finished largely unchanged.
Brent crude oil rose by more than $1 towards $107 on Friday after the United States approved air strikes against Islamist militants in Iraq, raising concerns over the security of oil supplies from OPEC's second largest producer. ($1 = 3.2060 ringgit)- Reuters
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