(Update 1: Fri 27/06/14 14:37:57)
KUALA LUMPUR (June 27): Malaysian palm oil futures fell for a second session on Friday, as easing crude prices reined in biodiesel demand for the tropical oil, and as weakness in comparative soyoil markets dragged.
Benchmark prices shot up to a near one-month high of 2,511 ringgit earlier this week, as violence in Iraq sparked fears of supply disruptions from OPEC's second-largest producer, in turn making palm a more attractive option for biodiesel feedstock.
This demand cooled off, as crude prices eased later. Palm prices, however, are little changed from last week and are set for a third straight weekly gain, with a 0.1 percent rise so far.
"The palm market went up, along with higher crude oil. When that came down, our market also followed," said a trader with a foreign commodities brokerage, adding that overnight losses in soy markets also weighed on palm prices.
By the midday break, the benchmark September contract on the Bursa Malaysia Derivatives Exchange had inched down 1.1 percent to 2,444 ringgit ($762) per tonne.
Total traded volume stood at 15,609 lots of 25 tonnes — above the average 12,500 lots.
Brent crude was unchanged at $113.21 a barrel by 0525 GMT, after falling 79 cents in the previous session, and is heading for its biggest weekly loss since March, as investors unwound positions on reduced concerns over exports from strife-torn Iraq.
U.S. crude was down a cent at $105.83, and is set for a 1.4 percent weekly loss — the biggest in a month.
Technicals showed that palm oil's next target is 2,422 ringgit, although it faces a resistance at 2,513-2,554 ringgit, according to Reuters market analyst, Wang Tao.
Palm oil prices could drop to between 2,300-2,500 ringgit per tonne over the next few weeks, missing an earlier forecast by about 13 percent, given Indonesia's disappointing uptake of palm-based biodiesel, leading vegetable oil analyst, Dorab Mistry, said on Thursday.
Mistry added that while demand will be robust at the lower end of this range, a rise to near 2,500 ringgit could curb interest and push up Malaysian palm stocks to a peak of 2.5 million tonnes by November. Stocks at end-May stood at 1.84 million tonnes.
"Many people say that the price level now, is on the higher side, and that it should go lower," the trader added.
Another Kuala Lumpur-based commodities dealer said that the easing palm prices would likely provide a weaker tone for next week.
Strength in the Malaysian currency on Friday, also stemmed buying interest from overseas investors and refiners.
The ringgit rose as much as 0.4 percent to 3.2050 against the greenback on Friday, its strongest since June 13, buoyed by expectations that Malaysia's central bank will raise interest rates next month.
But the current hot and dry weather across Malaysia capped losses, keeping palm prices in a tight range between 2,442-2,469 ringgit. Short spells of dry weather can hinder growth of palm fruit.
Some market players say that the heat could be early signs of the drought — inducing El Nino weather pattern, which is slated to hit Southeast Asia, later this year.
In competing vegetable oil markets, the U.S. soyoil contract fell 0.2 percent in early Asian trade, while the most active soybean oil contract on the Dalian Commodities Exchange, shed 0.5 percent.
Palm, soy and crude oil prices at 0618 GMT
Contract Month Last Change Low High Volume
MY PALM OIL JUL4 2465 -22.00 2465 2479 177
MY PALM OIL AUG4 2460 -21.00 2460 2479 1175
MY PALM OIL SEP4 2444 -26.00 2442 2469 9653
CHINA PALM OLEIN JAN5 6000 -56.00 5992 6048 249592
CHINA SOYOIL JAN5 7006 -38.00 7000 7052 276170
CBOT SOY OIL DEC4 40.76 -0.10 40.74 40.99 1930
NYMEX CRUDE AUG4 105.55 -0.29 105.48 105.90 6822
Palm oil prices in Malaysian ringgit per tonne
CBOT soy oil in U.S. cents per pound
Dalian soy oil and RBD palm olein in Chinese yuan per tonne
Crude in U.S. dollars per barrel
($1 = 3.2085 Malaysian ringgit)
($1 = 6.2176 Chinese yuan)