"This is a headache, the market is dropping quite a bit. Investors are using the high stocks level to book profits," said a trader with a foreign brokerage, estimating stocks could go beyond the record 2.5 million tonnes notched in October. Palm oil futures are set to post their worst annual performance this year since the financial crisis struck in 2008 as high stocks, flagging demand and deepening euro zone debt crisis curbed risk taking.
The benchmark February contract on the Bursa Malaysia Derivatives Exchange fell as much as 2.4 percent to 2,313 ringgit ($760) per tonne before settling at 2,317 ringgit. Total traded volumes stood at 30,926 lots of 25 tonnes each, higher than the usual 25,000 lots as investors actively booked profits. Palm oil is expected to end its current rebound, based on a presumption that the fall from the November 20 high of 2,485 ringgit has not been completed, said Reuters market analyst Wang Tao.
Stronger buying from Europe and India lifted Malaysian palm oil exports in November compared to a month ago, according to data from cargo surveyors. Based on this, some traders are holding out for signs of higher demand, coupled with seasonally weaker palm oil output in Malaysia that could limit the growth of this Southeast Asian country's stocks.
Production tends to slow down in the year-end as heavy rains can trigger floods that disrupt harvesting and complicate logistics. "Previously we were talking about December-January stocks hitting 3 million tonnes, but I don't think that will materialise," said another trader. "Instead of going up, stocks could drop down by at least 50,000 tonnes because of demand from Europe and China". In palm oil's competing markets, US soyaoil for December delivery rose 0.8 percent. The most active May 2013 soybean oil contract on the Dalian Commodity Exchange climbed 1.4 percent in late Asian trade.