Malaysian palm oil edges lower on profit-taking, output hopes support

KUALA LUMPUR - Malaysian palm oil futures edged lower on Wednesday as investors continued to book profits from prices that surged to one-year highs last week, but optimism on slowing production capped losses and kept the market trading in a tight range.

Benchmark prices posted their biggest weekly gain in more than four years last week, lifted by strong Asian demand and expectations that Southeast Asian palm oil output has begun to taper off.

Malaysia and Indonesia, which together account for about 90 per cent of the world's palm oil supply, will likely see smaller yields of the tropical oil as seasonal monsoon rains roll in.

"There's some mild profit-taking at this level since margins are lower, but the downside could be limited because a lot of investors are expecting bullish to neutral MPOB numbers," said a trader with a local commodities brokerage.

"Production is tapering. November's production could even be lower by 5-8 per cent," the trader added. Smaller output will eat into stocks, which stood at 1.78 million tonnes at the end of September.

Industry regulator Malaysian Palm Oil Board (MPOB) will release data on Malaysia's end-October palm oil stocks, exports and output on Nov. 11.

By the midday break, the benchmark January contract on the Bursa Malaysia Derivatives Exchange had fallen 0.4 per cent to 2,569 ringgit ($808) per tonne. Prices traded in a close range of 2,559-2,585 ringgit.

Total traded volume stood at 17,007 lots of 25 tonnes each, slightly higher than the usual 12,500 lots.

Technicals showed Malaysian palm oil is expected to test a support at 2,544 ringgit per tonne, a break below which will lead to a further loss to 2,491 ringgit, said Reuters market analyst Wang Tao.

The weaker Malaysian ringgit on Wednesday also supported prices as it stokes buying interest from overseas buyers. The currency fell 0.33 per cent to 3.1845 against the greenback in early trade.

In other markets, Brent futures rose towards $106 a barrel on Wednesday after investors in Asia latched on to a fall in US oil product inventories, which revived hopes of an improvement in US demand and helped crude recover from a steep fall overnight.

In competing vegetable oil markets, the US soyoil contract for December fell 0.1 per cent in early Asian trade. The most-active May soybean oil contract on the Dalian Commodities Exchange fell 0.6 per cent.