=DJ FOCUS:Palm Oil Output Remains Weak; High Output, Slow Buying KUALA LUMPUR (Dow Jones)--Crude palm oil prices are likely to keep falling over the next two months as production peaks in Malaysia and Indonesia and the overall weakness in the commodities complex continues to put pressure on prices, analysts said Thursday.
That has turned importers increasingly cautious after many of them incurred heavy losses on earlier purchases which were contracted at much higher prices. The prevailing mood in the market could further dent exports from Southeast Asia as key buyers postpone their decisions, waiting for greater stability in the market, traders said. "Technically, CPO prices are trying to find a floor before they stabilize," said Alvin Tai, an analyst with Kuala Lumpur-based OSK Research. Aseambankers, a Malaysia-based research company, Monday said CPO prices may fall towards MYR2,691/ton soon, In a report, Aseambankers said investors should go short if there is a near-term rebound in prices because technical indicators aren't showing any bottoming pattern. The benchmark third month crude palm oil futures contract on Malaysia's derivatives exchange has fallen nearly 40% from its peak in early March. At 0815 GMT, the contract was at MYR2,817/ton, up MYR27 from Wednesday's close. The contract had touched a nine-month low of MYR2,700 Tuesday. Analysts and brokers said they expect sentiment to remain weak in the near-term, adding to the pressure on prices. There won't "be an automatic surge in demand after the fall in prices which has taken place in last few days," said R. Ramamoorthy, an executive with A.R. International, an Indian vegetable oils brokerage. He said many importers now have pending contracts finalized at higher prices but yet to be delivered, making them wary of booking new shipments. Three weeks ago, traders were buying palm olein in the cash market at $1,200/ton, free-on-board, Malaysian ports, but those prices have now fallen to around $965/ton. There are buyers who need to book more cargoes, but they want to wait for prices to stabilize before placing new orders, said A. Rasheed Janmohammad, vice-chairman of Pakistan Edible Oils Refiners Association. According to Ramamoorthy, the expectation in the market is that prices could fall further. "Traders don't want to get caught in the current volatility by buying today for what is needed tomorrow." "We weren't expecting prices to fall so much and so fast," said Janmohammed. Importers Delay Buying; Some Fear Defaults Janmohammed said in the run-up to Ramadan, Pakistan typically imports around 150,000 tons of palm oil in August, but only 75% of that has been bought so far this year because of high volatility in prices. Import demand in September will be another 125,000 tons, but again, only 30% to 40% of that has been bought so far. Similarly, Indian importers ship large quantities of palm oil from August, ahead of the festival season that begins in October, but many of them have been waiting this year for the market to stabilize, Ramamoorthy said. Moreover, the revival in monsoon rains in India has helped increase oilseeds planting in the last few weeks, contributing to lukewarm demand from Indian importers. It is not just Indian and Pakistani buyers who have adopted a wait-and-watch approach. "Middle Eastern and African countries are yet to make at least 50% of their purchases for August-September shipments," said a Kuala Lumpur-based executive at a global trading company. Meanwhile, the sharp fall in prices has increased the risk of defaults by earlier buyers, said Pradip Desai, managing director of Palm Trade Services, a Mumbai-based trading company. Desai said it is difficult to estimate how many contracts haven't been honored, but some estimates by traders show canceled or revised contracts could run into a few hundred thousand tons. Subdued Price Outlook In Months Ahead Analysts said prices are likely to remain under pressure and a recovery is possible only toward the end
