DJ Asian Crude Palm Oil Ends Lower On Crude Oil, Weak Fundamentals

KUALA LUMPUR (Dow Jones)--Crude palm oil futures on Malaysia's derivatives exchange ended lower Monday as crude oil extended its overnight losses, prompting investors to take profit.
Palm oil's fundamentals remain weak due to rising CPO production and its narrowing discount to soyoil, which makes the latter more attractive, trade participants said.

The benchmark August contract on Bursa Malaysia Derivatives ended MYR25 lower at MYR2,449 a metric ton, after tumbling to a one-week low of MYR2,437/ton in early trade.

Crude oil on the New York Mercantile Exchange dipped below $70 a barrel in Asia earlier in the day amid concerns over the euro zone's debt issues and poorer-than-expected job data from the U.S. July crude oil was trading 12 cents lower at $71.39/bbl at 1013 GMT. Trade participants said Malaysia's palm oil output last month likely rose 7% to 10% from April, and may continue to rise this month.
Palm oil prices may remain within their recent range for the next few sessions, moving in a MYR2,435-MYR2,460/ton band ahead of key production, export and stock data from the government-linked Malaysian Palm Oil Board due Thursday, they said.

Palm oil inventories are likely to increase in the second half of the year, as output in the world's second-largest
producer rises and major importers opt for soyoil due to a narrow spread to palm, affecting export growth, according to industry analyst James Fry. "There is no reason to doubt (that stocks will rise), especially since the Ramadan boost to exports ends relatively soon and China and India are favoring soyoil right now," Fry, who is chairman of London-based agribusiness consultancy LMC International Ltd., said. Export demand for CPO normally increases during the major Muslim festival.

CPO production in Malaysia this year is likely to rise from the 2009 level of 17.6 million tons, due to slow
replanting and growth in mature producing areas, he said. The expected rise in output and stocks could place downward pressure on CPO prices, which have declined 8.8% since the start of the year as palm oil's wide discount to soyoil disappeared, steering buyers to soyoil.

Cash palm olein used to be offered at a discount of more than $100/ton to soyoil, but the spread has narrowed since late last year and it now trades at par or at a slight premium. In the cash market, palm olein for July delivery traded at $782.50/ton and October/November/December contracts at $757.50/ton and $760/ton free on board Malaysian ports, a Singapore-based trading executive said.

Cash CPO for prompt shipment was offered MYR20 lower at MYR2,550/ton. Open interest on the BMD  as 69,345 lots versus 69,501 lots Friday. A total of 14,255 lots of CPO were traded compared with 10,117 lots Friday. One lot is equivalent to 25 tons.

Closing BMD CPO futures prices in MYR/ton at 1000 GMT: 
 
Month   Close  Previous  Change    High     Low 
Jun'10   2,538     2,560 Down 22   2,544   2,538 
Jul'10   2,496     2,515 Down 19   2,496   2,481 
Aug'10   2,449     2,474 Down 25   2,456   2,437 
Sep'10   2,419     2,448 Down 29   2,429,  2,410 
 
  -By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233;
shie-lynn.lim@dowjones.com