10/08/2010 (Bloomberg) - Palm oil plunged the most in more than three months after reports showed that shipments from Malaysia, the second-biggest producer, declined this month.

October-delivery futures slid 2.2 percent to 2,670 ringgit ($846) a metric ton on the Malaysia Derivatives Exchange, the biggest drop since April 19. Prices gained in the previous four days and yesterday reached the highest level since May 13, 2009.

Exports from Malaysia fell 14 percent in the first 10 days of August from the previous month, independent market surveyor Societe Generale de Surveillance said today. Rival Intertek said shipments were 17.4 percent lower.

“The market is reacting to the lower exports,” Ryan Long, a dealer at OSK Investment Bank Bhd. in Kuala Lumpur, said by phone. “I actually foresee some improvement later this month,” in shipments, he said.

Stockpiles in Malaysia fell to a one-year low in July after Asian nations increased purchases before religious festival. The inventory fell to 1,405,740 tons, the lowest level since July 2009, the Malaysian Palm Oil Board said in a statement today. Exports grew 1.8 percent to 1,469,768 tons from June, it said.

“Inventory has fallen more than estimated and that is supportive for prices in the short term,” said Ben Santoso, a plantation analyst at DBS Vickers Securities (Singapore) Pte. “Stockpiles may not rise until the end of September when plantation workers return after Ramadan and Eid,” he said, referring to the Muslim religious festivals.

Output rose 7 percent in July from a month earlier to 1,518,753 tons, the most since March, the board said.

Upside Trend
Palm oil has rebounded 18 percent since dropping to the lowest price in almost eight months on July 7 on speculation that demand may increase in Asian nations and harvesting in Malaysia may be disrupted in November and December if the La Nina weather event causes flooding in major growing areas.

“The bigger trend is still more on the upside; it’s just a good correction day today,” OSK Investment’s Long said. “Those that missed the rally earlier may come in to buy if the market dips further.”

Futures may decline to a range of 2,625 ringgit to 2,585 ringgit as advances of this kind are often followed by a sharp reversal, Gnanasekar Thiagarajan, director of Commtrendz Risk Management Services Pvt., said in an interview yesterday. The 14-day relative strength index of the commodity is above 80, signaling “it was extremely overbought,” he said.

Palm oil’s relative strength index, or RSI, which measures how fast prices move up or down, dropped to 69 today from 80 yesterday, according to Bloomberg data.

December-delivery soybean oil, a direct substitute for palm oil, fell 0.4 percent to 42.32 cents a pound. The vegetable oil’s premium over palm oil widened to $87.30 a ton from $68.22 yesterday, according to Bloomberg data.

CME Group Inc.’s October-delivery palm oil contract, pegged to the Malaysian benchmark price, slumped as much as 1.6 percent to $847 a ton. On the Dalian Commodity Exchange, January- delivery palm oil tumbled 1.4 percent to 7,084 yuan ($1,046) a ton and soybean oil for delivery in May fell 1.3 percent to 8,296 yuan a ton.