17/06/2011 (Business Recorder) - Malaysian palm oil futures dropped to more than five-week lows on Thursday as traders cut back on worries that stocks could grow beyond 2 million tonnes this month.

Although orders for the tropical oil have grown in response to higher output in Malaysia and a widening discount to competing soyoil, stocks are expected to rise above the 16-month high of 1.92 million tonnes hit in May.

The benchmark September crude palm oil contract on the Bursa Malaysia Derivatives Exchange lost 2.4 percent or 77 ringgit to 3,193 ringgit ($1,053.118) a tonne, the lowest level since May 9.

If in the next few months Malaysian stocks rise above the record 2.3 million tonnes last seen in November 2008, palm oil prices could extend a loss of 14 percent so far this year.

"I think 3,000 ringgit needs to come, sooner or later. We are on track for declines and that is helped by weaker crude oil and soyoil as well," said a trader with a foreign commodities brokerage.

Overall traded volume was 27,666 lots of 25 tonnes each, higher than the usual 25,000 lots, boosted by a last-minute sell-off.

"The fall in the last one hour before trading closed was some shorts taking advantage to break 3,200 ringgit," said another trader in Kuala Lumpur.

"Unless there is some major fall in overnight soyoil trade on Chicago Board of Trade, we'll see the market rebound tomorrow."

Cargo surveyor Societe Generale de Surveillance said June 1-15 Malaysian palm oil exports jumped 16.2 percent to 699,674 tonnes from a month ago.

Demand was driven mostly by China as well as the Indian subcontinent, which has a sizable Muslim population and needs to restock ahead of Ramadan, when elaborate dinners follow fasting during the day.

Part of this has to do with the main cooking oil ingredient -- refined, bleached and deodorised palm olein -- widening its discount to competing soyoil to $90 per tonne from $80 last week.