19/07/2011 (Bloomberg) - Palm oil dropped for a second day, declining after reaching the highest level in more than three weeks, on concern that demand for the cooking oil may drop as Europe and the United States tackle debt crises.

The September-delivery contract slipped as much as 1.1 percent to 3,083 ringgit ($1,022) per metric ton on the Malaysia Derivatives Exchange in Kuala Lumpur and was at 3,092 ringgit at 3:45 p.m. local time. Futures earlier climbed to 3,148 ringgit, the highest intraday level since June 23.

European leaders are holding a special summit this week as they seek to contain the region’s debt crisis, after eight of the region’s banks failed stress tests and European Central Bank President Jean-Claude Trichet reiterated the ECB won’t accept as collateral bonds from a nation that defaults.

“Investors are concerned about the global economic recovery,” Ker Chung Yang, an analyst at Phillip Futures Pte., said by phone from Singapore. “Investors may take a cue from the currency markets’ response to the stress-test result for banks and what happened in the U.S. about the debt ceilings.”

U.S. President Barack Obama and leaders of Congress face an Aug. 2 deadline to raise a $14.3 trillion debt ceiling. A default would cause more panic than the collapse of Lehman Brothers Holdings Inc. in 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast yesterday.

“External markets at the moment are at the negative side, so there’s some spillover,” Donny Khor, senior vice president for futures & options at OSK Investment Bank Bhd., said by phone from Kuala Lumpur.

Price Controls
China ended price limits on edible oils, the Quanzhou Evening News said yesterday, citing an unidentified official at the price department of the National Development and Reform Commission, the top economic-planning agency. A call by Bloomberg News to the office of NDRC Deputy Secretary-General Li Pumin today wasn’t answered.

China told suppliers to cap prices in November to tackle inflation, which has since reached the fastest pace in three years. Wilmar International Ltd. (WIL) Chief Executive Officer Kuok Khoon Hong said May 13 China is unlikely to lift price controls any time soon because of inflation.

“A three-week high may have prompted traders to come off their long positions,” Anand James, chief analyst at brokerage Geojit Comtrade Ltd., said from Kochi, India. A so-called long position is a bet on rising prices.

Palm oil for May delivery on the Dalian Commodity Exchange fell 0.6 percent to close at 9,096 yuan ($1,406) a ton. Soybean oil for delivery in the same month dropped 0.7 percent to 10,268 yuan at the close.

Soybeans for delivery in November shed as much as 0.7 percent to $13.78 per bushel on the Chicago Board of Trade. Soybean oil for December delivery also fell as much as 0.7 percent to 57.83 cents per pound.