KUALA LUMPUR: Palm oil prices dropped on concern that the European sovereign debt crisis may worsen, reducing demand for food and fuel, and after a rally to the highest level in more than six weeks prompted some investors to sell.
The March-delivery contract declined 1.1% to close at RM3,190 per tonne on the Malaysia Derivatives Exchange. The contract ended unchanged at RM3,225 on Wednesday, the highest close since Nov 18.
Asian stocks snapped a two-day rally and extended a global decline as Greek Prime Minister Lucas Papademos said on Wednesday that without a deal with the European Union (EU), International Monetary Fund and European Central Bank, the nation “faces the immediate risk of a disorderly default” in March.
Luxembourg Prime Minister Jean-Claude Juncker said that the EU was facing recession.
The events in Europe might be “affecting the risk appetite” of investors for palm oil, Ker Chung Yang, an analyst at Phillip Futures Pte, said by phone from Singapore. “Profit-taking has set into place after the recent rally.”
Rain in Sabah and Johor might last till Jan 8, the Meteorological Department said in an update on its website yesterday. The two states account for more than 40% of the total oil palm area in Malaysia, according to data from the nation’s palm oil board.
Dry weather in South American soybean-growing regions has raised concerns that crops may be threatened, boosting demand for supplies from the United States. Palm oil and soybean oil are substitutes in food and fuel uses.
The weather concerns would limit the decline in palm oil, said Ker.
“Johor and Sabah are going to be affected by floods in low-lying areas, and in Argentina and Brazil there is hot and dry weather.”