KUALA LUMPUR, Nov 5 (Reuters) - Malaysian palm oil futures fell for a second day to a one-week low on Wednesday, tracking steep losses in soy and crude oil, and further pressured by another round of correction.
   
Weaker soyoil prices could diminish appetite for palm as price-sensitive buyers opt for the rival edible oil instead, market players said. Both are common food and fuel substitutes.
    
The benchmark January contract on the Bursa Malaysia Derivatives Exchange fell to 2,243 ringgit, the lowest since Oct. 29 in late trade, before settling down 2.4 percent at 2,252 ringgit ($674) per tonne by Wednesday's close.
    
Total traded volume stood at 54,548 lots of 25 tonnes, above the usual 35,000 lots.
    
The discount of free-on-board refined palm olein <POL-MYRBD-M1> to Argentina soyoil narrowed to around $70 on Tuesday from around $130 at end-August.  
    
"The time is right for a healthy correction. The gap has been narrowing and we are worried about demand," said a trader with a local commodities brokerage in Kuala Lumpur.
    
The U.S. soyoil contract for December which is commonly tracked by palm oil tumbled 2 percent in late Asian trade, while the most active January soybean oil contract on the Dalian Commodities Exchange fell 2.5 percent.
    
"Demand from India, China and the Middle East has been tepid, while our prices were skyrocketing. Of course, expectations for reduction in output and end-stocks would help (prices), but to sustain above 2,300 ringgit more demand is needed," the trader added.
    
"Based on the current supply and demand scenario, the market should be somewhere close to 2,250-2,270 ringgit."        
     
Bouts of dry weather earlier this year in Malaysia and Indonesia, the world's top two oil palm growers, are widely exected to curb supply into 2015.
    
"We believe 2015 crude palm oil supply growth will be muted compared to 2014 as planters had a relatively good harvest in 2014," Maybank Investment Bank analyst Ong Chee Ting said in a note on Wednesday, adding that dryness was seen in Malaysia and Sumatra during Feb-March, and in southern Sumatra and central Kalimantan during Sept-Oct.
    
"We maintain our "neutral" view on the sector with an unchanged 2015-16 crude palm oil average seling price of 2,600 ringgit a tonne for now," he said, adding that a key downside risk to the forecast is a further decline in crude oil prices.
    
Brent oil dropped to a new four-year low below $82 a barrel on Wednesday, a fifth straight session of losses, as weak economic data from top energy consumer China intensified worries about demand as a global supply glut grows
    
Cheaper crude prices makes palm oil less attractive as a biodiesel feedstock.
    
However, a weaker local currency helped cap losses, making the ringgit-denominated feedstock cheaper for overseas investors and refiners. The Malaysian ringgit fell another 0.3 percent to 3.3410 against the greenback on Wednesday, its weakest since Feb. 11.
    
Technicals showed palm oil may find support at 2,259 ringgit per tonne, as it has broken the earlier support at 2,295 ringgit, said Reuters market analyst Wang Tao.
    
Elsewhere, SCB Group on Tuesday brokered the first trade in CME Group's newly listed Malaysian Palm Olein Calendar Swaps.
    
The U.S. dollar-denominated, centrally cleared, over-the-counter contracts are referenced on the monthly average prices from Thomson Reuters of the third forward month of Malaysian refined,
bleached and deodorized palm olein.
 
  Palm, soy and crude oil prices at 1022 GMT
                                                                                                                       
  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      NOV4    2240   -45.00    2230    2265     115
  MY PALM OIL      DEC4    2259   -56.00    2250    2295    2676
  MY PALM OIL      JAN5    2252   -56.00    2243    2290   30326
  CHINA PALM OLEIN JAN5    5178  -190.00    5176    5316  730156
  CHINA SOYOIL     JAN5    5776  -148.00    5770    5882  212106
  CBOT SOY OIL     DEC4   32.46    -9.50   32.37   33.23   10468
  INDIA PALM OIL   NOV4  449.00    -9.50  447.50  457.70    1091
  INDIA SOYOIL     NOV4  582.90    -8.05  581.60  595.80   35465
  NYMEX CRUDE      DEC4   76.67    -0.52   76.46   77.39   24238
                                                                                                                       
  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
  India soy oil in Indian rupee per 10 kg
  Crude in U.S. dollars per barrel
 
($1 = 3.341 Malaysian ringgit)    
($1 = 6.1146 Chinese yuan)
($1 = 61.45 Indian rupee)