14/09/2012 (Reuters) - Malaysian palm oil futures dropped on Thursday on expectations of output rising this month that could lead to a stock build-up, although losses were limited by expectations of strong Asian demand and tight supply of competing soyoil.

Palm oil prices have lost 8 percent so far this year thanks to the euro zone debt crisis stirring concerns of weaker global growth and commodity demand. In recent weeks, palm oil has dropped below 3,000 ringgit on rising stocks.

"The market is bearish. There's no doubt about it because fundamentally stocks are very high and there is no sign that production is slowing down," said a trader with a local commodities brokerage.

"Everybody knows at the back of their mind that production is climbing higher towards the peak, maybe in October," the trader added.

The benchmark November contract on the Bursa Malaysia Derivatives Exchange ended down 0.6 percent to 2,912 ringgit ($944.8) per tonne.

Total traded volume stood at 32,384 lots of 25 tonnes each, higher than the usual 24,000 lots.

Technicals showed palm oil will end its current rebound around a resistance at 2,960 ringgit per tonne and drop back to its Sept. 11 low of 2,874 ringgit, said Reuters market analyst Wang Tao.

Traders have said the palm oil's widening discount to soyoil limit prices from falling as consumers shift their purchases to the tropical oil produced in Indonesia and Malaysia.

"Palm oil is now so much discounted against soy bean oil with the cap reaching $300. The market is just waiting for the time to bounce back and climb higher. Eventually, demand will start setting in," said the trader.

For now, palm oil's discount to soyoil could widen further after the U.S. Department of Agriculture cut its estimate of the soybean crop in the world's top grain-exporting nation.

The USDA pegged the soybean harvest at 2.634 billion bushels, down from last month's 2.692 billion and below analysts' average estimate of 2.657 billion. Ending stocks next summer were projected to be the lowest in nine years at 115 million, unchanged from August' s estimate.

Oil futures rose above $116 a barrel on Thursday as investors awaited a U.S. Federal Reserve announcement, expected to include more stimulus action to bolster the economy of the world's biggest oil buyer.  

In other vegetable oil markets, U.S. soyoil for December delivery inched up 0.2 percent. The most active January 2013 soyoil contract on the Dalian Commodity Exchange rose 0.7 percent.

  Palm, soy and crude oil prices at 1007 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      SEP2       0    +0.00       0       0       0
  MY PALM OIL      OCT2    2855   -24.00    2847    2897     619
  MY PALM OIL      NOV2    2912   -18.00    2894    2948   16201
  CHINA PALM OLEIN JAN3    7946   +28.00    7940    8034  246730
  CHINA SOYOIL     JAN3   10060   +74.00   10050   10140  533740
  CBOT SOY OIL     DEC2   56.57    +0.09   56.32   56.84    6249

  Palm oil prices in Malaysian ringgit per tonne
  CBOT soy oil in U.S. cents per pound
  Dalian soy oil and RBD palm olein in Chinese yuan per tonne
  Crude in U.S. dollars per barrel